Household liquidity buffers have increased significantly in recent years, helping households avoid mortgage and other debt stress.

According to Reserve Bank research reported in the latest RBA Bulletin, the stock of household liquid assets has been growing steadily since 2003 and has increased by around 50 per centage points since 2010.

Seventy per cent of the increase was in the one-third of households with mortgage debt.

The current level of cash and other assets that can be converted into cash quickly is around 190 per cent of household income.

“This allows households to smooth their spending and maintain their payment obligations, including their debt payments, over time,” the RBA said.

It found “strong evidence” that the size of liquidity buffers is a key determinant of whether a borrower will report facing difficulty paying a mortgage.

“In aggregate, the rise in household liquidity buffers has accompanied a trend decline in the share of households reporting financial stress, despite the well documented rise in household debt-to-income ratios,” it said.

After taking the rapid growth in liquid assets into account, the RBA said the household sector’s net DTI ratio has declined substantially over the past 10 years.

“The value of household liquid assets now almost matches the value of gross household debt.”

Looking at the distribution of liquidity buffers across individual households, the RBA found that household liquidity buffers have been rising across all income levels.

It also found that distribution is “reasonably well matched” to those households that are most likely to need to use them; that is, households with the most debt and households with borrowers who are more prone to experiencing income loss.

“Highly indebted households typically have higher stocks of liquid assets,” the RBA said.

And it found that the share of liquidity-constrained households has fallen.