Households have both hands on the wheel of their mortgage debt, with lenders experiencing a surge in voluntary repayments, Philip Lowe, governor of the Reserve Bank said yesterday. This is helpful for the credit quality of banks' mortgage books, but negative for the credit quality of many business loans, especially those retailers recoiling from the flip-side of the wary spending choices. In a speech devoted to framing the RBA's latest thinking on monetary policy, Lowe backgrounded trends in mortgage credit. "As monetary policy has been eased since late 2011, interest payments as a share of credit have come down [and] this has freed up income to be spent on other purposes," Lowe said. Lowe said fluctuations "in the rate of repayment of principal over time partly reflect trends in the housing market. "In particular, the increase in repayments around 2014 and 2015 was associated with strong growth in offset accounts and coincided with a period of high turnover in the housing market and strong growth in loan refinancing. "Over the second half of 2019, principal payments have increased, more than offsetting the decline in interest payments. Households have made larger voluntary repayments and they have also maintained higher balances in their offset accounts." This upswing in principal payments "has been made possible by the higher tax refunds for low and middle-income earners which have boosted disposable income," Lowe said. "It is entirely understandable that households faced with low growth of wages and falling housing prices sought to repay their debts a bit faster," he said. On monetary policy, Lowe closed few doors and defended the RBA board's decision to ease policy in the middle of last year. "My judgement is that if the Reserve Bank had not eased monetary policy last year, this adjustment by households would have been harder, the balance sheet repair would have been more difficult, and the economy would have been weaker," Lowe said. "The lower interest rates have assisted with both sides of the balance sheet. They have allowed people to pay down their liabilities more easily, and they have also boosted asset prices. "So they are helping, not hampering, the process of balance sheet adjustment. In doing so, they are also bringing forward the day when households feel comfortable to lift their spending again." And he admitted: "I certainly understand that having interest rates at very low levels has unsettled some people." He was thinking of disgruntled individual savers - but he might as well be referring to the smaller banks and credit unions whose margins and profitability are being sorely tested.