Andrea Brischetto, Head of Financial Stability, RBA
Five per cent of home loan borrowers have insufficient income to cover their mortgage payments plus essential expenses, and around 2 per cent have both an income shortfall and low savings, the Reserve Bank said.
The RBA also reported that just over 20 per cent of variable rate owner occupier home loan borrowers are devoting more than 30 per cent of their income to mortgage payments.
Speaking at a banking conference at the University of Sydney on Friday, Reserve Bank head of financial stability Andrea Brischetto said lower income households were more likely to have an income shortfall than borrowers on high incomes.
Brischetto said: “We know from securitisation data that most of the 5 per cent of variable rate owner occupier borrowers who we estimate to have an income shortfall have substantial savings buffers.
“That is, they have sufficient savings in their mortgage offset and redraw accounts to finance their income shortfalls for some time. This gives them time to explore their options.”
Around 2 per cent of variable rate owner occupier home loan borrowers have both an income shortfall and low savings, and could fall into severe stress within six months. The RBA defines severe financial stress as households that are unable to service their debts or pay their essential bills out of income or savings.
Brischetto said lower income households were over-represented in this group.
She said borrowers yet to roll off fixed-rate loans are likely to see similarly sized increases in their mortgage costs as those experienced by variable rate borrowers. But fixed-rate borrowers, having avoided those higher payments for longer, have been able to build up their savings.
In the event of job loss, where a household loses all its income, around half of all variable rate owner occupier borrowers would have enough savings in their offset or redraw accounts to sustain their scheduled payments and essential expenditures for at least six months.
In any case, more than half of households with mortgages have multiple incomes.
Those all-important savings buffers are running down. After saving much more than usual during the pandemic, households are now saving less than they did on average before the pandemic. The proportion of borrowers who are persistently drawing down on their stock of savings has increased from previous years.