Australian households are in good financial shape despite historically high debt-to-income levels.
The Reserve Bank's latest Financial Stability Review has revealed that Australian households are saving more and taking on less debt in a "more cautious attitude towards borrowing and investment behaviour". The RBA believes that the net household saving rate hit 10% in 2010, in stark contrast to the mid-2000s when there was very little saving.
This, combined with rising incomes, puts households in a strong position for the future, says the report, despite overall high levels of indebtness – although some households could now be more exposed to shocks to their incomes and financial circumstances. The debt-to-income ratio for investors, however, is less than one-third that of the overall ration, and half that of owner-occupiers.
The report also notes that the household sector is coping reasonably well with its debt levels and higher interest rates, with mortgage arrears rates low by international standards. It does point out, however, that mortgage arrears have risen in Queensland, which it attributes to the softer property market in the state, higher-than-average unemployment and the recent floods.
The RBA also notes that first home buyers who purchased during 2009 – when the enhanced first home owners grant was in force and interest rates were low - are performing no worse than borrowers who bought properties at an earlier point, despite the group being made up of a higher proportion of low-income borrowers.
These first home buyers are likely to have reduced their LVRs since they purchased their homes, given that they have made some principal repayments and housing prices have risen," added the report.
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