Australian home-owners have repaid mortgages ahead of time

 

The Reserve Bank (RBA) has noted that Australian home-owners have repaid mortgages ahead of time mounting to about 20 months worth of scheduled loan payments.

 

 

 

The RBA's semi-annual financial stability review released today revealed that household indebtedness and gearing are still around historically high levels so from the perspective of their financial resilience it would be preferable if households maintained this more prudent behaviour.

 

 

 

Australia's household debt-to-income ratio stands at 148 per cent, compared with a record 153 per cent in late 2006, RBA data show, and that's higher than the 133 per cent Americans accumulated at the peak of the US subprime mortgage boom.

 

 

 

The RBA said that while global financial conditions have improved significantly since its last review, renewed market tensions over the crisis in Cyprus highlight the political,  social, and economic challenges of resolving pervasive fiscal and banking problems.

 

 

 

The RBA lowered borrowing costs by 175 basis points in the 14 months through December, matching a half-century low of 3 per cent, to help offset the drag on the economy from a high currency and to boost industries including construction as mining investment is predicted to crest this year.  

 

 

 

The central bank said today that household credit growth has been slower in the past five years at an average annual rate of about 5 1/2 per cent than in the 20 years prior.  It said weaker demand for loans can pressure banks to compete harder to maintain revenue growth.

 

 

 

“From a risk management perspective, it is important that banks do not respond by imprudently loosening their lending standards,” the central bank said. “The available evidence suggests this is not occurring at this stage.”

 

 

 

Australians' savings rate held above 10 per cent of disposable income in the nine months through December, compared with minus 0.1 per cent in the first quarter of 2006.

 

 

 

The Australian banking system has increased capital levels, cut its reliance on wholesale bond markets, and made greater use of deposits as a source of funding.  “Changes in the composition of the Australian banks' funding over the past few years have left them in a better position to cope with disruptions to funding markets,” the RBA said. 

 

 

 

Lenders are also in a “good position” to meet Base capital requirements that began to be introduced in Australia this year, the RBA said.