Australian households are "delicately poised" at current interest rate levels, and increased household leverage could see the proportion of disposable income servicing interest hit historical highs above 11% during 2011.
A JP Morgan/Fujitsu Australian Mortgage Industry report released yesterday said currently 10% of disposable income is being used to service interest at a standard variable rate of 7.4%, up from a dramatic dive to 7.5% of disposable income following previous emergency settings of the cash rate by the RBA during the financial crisis.
The report warns if rates increase by 75 basis points by the end of 2011, the proportion of interest servicing by households could rise to above 11% - a return to historical highs, which would leave households vulnerable.
The delicate position is a result of an increase in household debt relative to GDP from 125% to 135% since mid-2007, the report said. Part of this increase has been driven by a surge in high-LVR first home buyer activity in 2009, and more recently, the return of upgraders and investors have added to the debt load.
"The current mortgage rate of 7.4% broadly reflects the average mortgage rate over the last 15 years, and should be seen as the likely minimum for mortgage rates over the coming years as the RBA tackles the inflation challenges associated with a rebounding economy facing capacity constraints," the report said.
"As such, while the RBA sees those households who have taken on debt are relatively well placed to fund them, it must be noted that the increasing portion of national wealth servicing interest does not bode well for domestic consumption levels."
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