IN CHARTS: Aus housing stability

The household debt-to-income ratio is just off its all-time high, after a significant increase in the past few years.

"Despite renewed growth in new mortgages, recent rate cuts have not pushed up the stock of housing credit as much as previous rate cuts.”

But while the recent growth in housing prices and mortgage demand isn’t pushing up housing credit too much, it is hitting affordability. Low-middle income earners are now less likely to be homeowners. Low-middle income earners are also now a higher share of total renters, at the same time as rents have increased substantially.

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Standard variable interest rates on mortgages have dropped to historical lows. Households seem to be taking advantage of lower interest rates to pay down debt more quickly, rather than reduce repayments. 

As a result, rate cuts have not had as much of an effect on housing credit as previous rate cuts. Households are taking advantage of rate cuts to pay down debt faster, rather than reducing payments.

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At the same time, we are seeing more interest-only loans expire and these are not replaced by the same volume of new interest-only loans.

Investors are a big part of the deceleration in housing credit, partly because they are more likely to be experiencing the interest-only loan transition. Overall investor housing credit is falling despite renewed demand for new investor mortgages.

Owner occupier credit is also growing more slowly. New mortgage growth for owner occupiers has risen sharply.

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The transition to less interest-only loans (IO loans) is affecting arrears.

Mortgage arrears rates, outside Western Australia, have been increasing since the beginning of 2018. A key driver is the transition from IO loans to principal and interest loans which, for some mortgages, can increase payments by up to 40 per cent.

The transition is a result of tighter credit regulations which make it more difficult to roll over to new IO loans. The lower share of new IO loans means we are unlikely to see a large volume of expiries. We are about mid-way through the transition from a high volume of IO loans to a low volume.

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Increased housing costs are not only affecting those shifting from IO loans to principal and interest loans. The average mortgage for a new first home buyer is higher than ever, at over $A400,000. The average new owner-occupier loan is also at an all-time high of over $A500,000. This may indicate some prospective buyers could be priced out of the market.

More evidence of this is low-middle income earners are now more likely to be renters and less likely to be owner occupiers compared with 20 years ago.

Not only is housing more expensive to buy, low-middle income earners are also using more of their income to pay rent.

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Compared with 20 years ago, a higher proportion of the bottom 50 per cent of income earners are now renters.

At the same time, rents have risen faster than the overall consumer price index (CPI) over the last 20 years.

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Substantial increases in rental costs (adjusted for overall inflation) have caused an increase in the proportion of low-income households in rental stress.

In 2007-08, around 39 per cent of capital city low-income households were in rental stress, which rose to around 48 per cent just ten years later.

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Felicity Emmett is Senior Economist and Adelaide Timbrell is Economist at ANZ