Few signs of household debt stress

The share of new loans to owner-occupiers and with a loan to valuation ratio of more than 90 per cent fell by more than a third over the last year, the Reserve Bank of Australia reported in its half-yearly Financial Stability Review.

Housing loans with an LVR above 90 per cent fell from a peak of 27 per cent in the March 2009 quarter to 17 per cent by the end of last year. The RBA's source is not clear, but is most likely from bank records.

One context for the RBA citing this data is the extent to which the first home owners boost, a lift to the usual Australian government grant to new buyers, encouraged lenders to loosen lending standards to meet demand last year.

The RBA argued, citing "partial credit bureau data" that "the creditworthiness of recent first-home buyers has been broadly similar to earlier cohorts of first-time borrowers."

The central bank also produced some conclusions based on the survey of Household, Income and Labour Dynamics in Australia, produced by the Melbourne Institute.

The RBA said that, based on the most recent HILDA Survey data, from late 2008 (but produced more recently) around two per cent of households with owner-occupier mortgages spent more than 50 per cent of their disposable incomes on mortgage repayments and also had an LVR of 90 per cent or more.

The HILDA shows that more than 90 per cent of owner-occupier households with mortgages either had an LVR below 80 per cent and, or, a debt-servicing ratio below 30 per cent of income.

The RBA said the share of households with negative equity "is estimated to be very low, with HILDA data suggesting that these households have historically been no more likely to be behind in repayments than other indebted households."

The RBA also noted that one other (and with the media, formerly popular) indicator of household financial stress was also showing signs of improvement.

Unlike the metropolitan newspapers, which used to report adverse trends in the data with gusto, the RBA has continued to track the rate of mortgagees' court applications for property possession. These declined substantially over the second half of 2009.

For New South Wales and Victoria, the RBA said rate of possession applications has fallen to 2005 levels, after a number of years whenit had been higher than average.

Queensland and Western Australia have also seen a substantial falling off in possession activity.