by
Ekaterina Skulskaya | Jun 12, 2013
In March 2013, the RBA published its semi-annual Financial Stability Review where the central bank discussed the fact that the household sector has maintained the prudent approach to its finances in the recent quarters by paying down debt faster than required and reducing demand for additional debt.
As interest rates kept falling, households took advantage of the lower interest rate environment to pay down debt faster than required leading to a slower credit growth in 2013 (Figure 1). The RBA also stated that even in the low interest rate environment, not all borrowers reduce their mortgage payments contributing to the large share of households with mortgage prepayments buffers. On an aggregate basis, households’ mortgage buffers are estimated to be around 20 months ahead of the scheduled repayments (principal plus interest) (Figure 2).
Figure 1 Figure 2
In regards to personal finance, households have continued to quickly pay off credit card debts. As RBA data suggests, net repayments on personal credit and charge cards are above average year to date, with balances on personal credit cards somewhat declined since the middle of 2012.
According to the report housing loans arrears declined across all states except parts of Sydney’s western suburbs and south-east Queensland including the Gold Coast (areas which rely on tourism and have experienced large price falls). The January floods in Queensland and Northern New South Wales also had some impact. Arrears rates in Hobart still remain relatively high despite a slight improvement since 2011 (Figure 3).
Figure 3
The report highlighted households increasing saving ratio which had a positive effect on household wealth. Real net worth per household rose by approximately 3.5% over the year to March 2013 which is 6.5% below the 2007 benchmark. The rise was mainly due to continued inflows into deposits and superannuation.
Overall, the RBA paper noted that the household sector continued to demonstrate a more prudent approach to the global financial crises that can be seen in a return to more normal saving patterns and reduced demand for borrowing. It appears that households have been taking advantage of the lower interest rates to repay existing debt more quickly than required and build mortgage buffers as a result. Housing loan arrears rates continued to improve across most parts of the country and other indicators of financial stress remain low.