Mortgage debt pulls household spending

By |

Australian homeowners reduce their spending when their mortgage debts are higher, according to The Effect of Mortgage Debt on Consumer Spending.

Research released by the Reserve Bank of Australia (RBA) found evidence for a “debt overhand effect”  with households cutting back their spending when they have higher levels of outstanding mortgage debt.

“Households reduce their spending when the gross value of both their debt and assets increases,” the report said.

The country’s ratio of household debt to disposable income increased to a record-high 190%, according to the data. The study also found that home loans had the biggest impact on spending, despite rising incomes and house prices.

“We estimate that annual aggregate consumption growth would have been around 0.2 to 0.4% higher had mortgage debt remained at its 2006 level,” the study said.

The study also found increasing owner-occupier debt has significant implications on spending across the economy, and partly explains the “puzzle” of unusually weak household spending since the 2008-2009 global financial crisis.

The value of new lending households dropped 1.3% in May, according to the Australian Bureau of Statistics (ABS).

ABS said personal finance also dropped 0.7% in May, following a 4.2% rise in April, and is down 16.2% year-on-year.

CommSec found other signs that the economy was struggling, with loan values for home renovations dropping 1.2% to a record-low $210m in May.  It also noted that the average loan for an established dwelling fell, with homeowners choosing to reduce debts rather than spend.

 

Top Suburbs : alexandria , willoughby east , gladesville , padbury , coorparoo

SHARE
Comments
  • Billy Twobob says on 15/07/2019 06:05:59 PM

    I would say it is the high cost of utilities, like power that has skyrocketed over the last few years.

Get help with your investment property



Do you need help finding the right loan for your investment?


When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.

Just fill in a few details below and we'll then arrange for a local Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus an appointment is free.

How soon would you like a mortgage?
What is your Annual Household Income i $
Do you currently own any Investment Properties?
Do you own your own residence?
How much equity do you have in all your current properties?
First Name
Last Name
Where do you live?
What number can we reach you on?
E-mail address
We value your privacy and treat all your information seriously - you can check out our privacy policy here