Aussie borrowers becoming smarter when it comes to repayments

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With interest rate rises predicted in coming months, Australian borrowers will more than likely be able to absorb any increase to their mortgage repayments.

According to global financial firm Deloitte’s 2016 Australian Mortgage Report, a large proportion of Australian borrowers have taken advantage of low interest rates on offer in recent years and have built a repayment buffer of up to a year in some cases.

“Customers are also continuing to access the benefits of the low interest rate environment by paying down their loans faster than their contractual obligations,” Deloitte’s report said.

“At the end of 2015, two thirds of borrowing was covered by at least one month’s repayment buffer. And for around a third of the loans for which data was available, the buffer was greater than 12 months,” the report said.

“This demonstrates some of the capacity of borrowers to absorb any potential, albeit modest, near term interest rate rises and is a strong indicator of the serviceability of loans.”

Deloitte claims Australian borrowers have also gained an increased understanding of the different repayment methods available to them, with offset accounts becoming increasingly popular.

“Customers continued to use the low interest rate environment to pay down their loans, particularly through off-set accounts, and grow increasingly savvy as to how best to use them instead of traditional redraws or P&I pay down structures, when they required flexibility,” Deloitte said.

“Offset accounts grew faster than any other type of account in 2015 and currently make up approximately 6.5% of at-call transaction accounts.”

After data from Fitch Ratings last week revealed a fall in Australian mortgage arrears, Deloitte agreed that Australia’s mortgage market is in good shape.

“Customers should continue to benefit from competition in the market, though interest rates cannot stay this low forever.

“However the high levels of prepayments and the increased focus by APRA on serviceability, demonstrate that there are sufficient buffers in most portfolios to ensure the continued strong performance of the Australian mortgage market, and its funders.”

That is likely to be helped by the fact that Australia’s residential property market will perform relatively strongly in 2016.

“The macro economic conditions in Australia, with its relatively low unemployment rate (6%), net immigration and minimal credit loss history, support a continued strong outlook for its housing market. Albeit at normalised growth rates, rather than the tremendous 20% rates seen in 2013-2015.”

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