borrow-fest:
Unstoppable trend: Borrowing levels continue to soar despite rising interest rates.
Despite 13 consecutive interest rate hikes by the Reserve Bank, Australians have surprisingly continued to increase their borrowing.
According to the latest Australian Bureau of Statistics lending data, the number of new loans written in June was 22,400—an increase of 6 per cent compared to the same period last year.
Moreover, the national average owner-occupier mortgage remains near its record high at $636,000, reflecting an 8 per cent rise over the past year. This suggests that more people are borrowing larger amounts, despite the rising cost of borrowing.
Average loan sizes for owner-occupier dwellings (original), by state:
Currently, the variable interest rate borrowers are facing is approximately 6.4 per cent, depending on individual circumstances. This is about three times higher than the rates before the series of hikes began. As a result, more Australians are borrowing larger sums and incurring higher payments to the banks.
This situation provides a clear perspective on household debt. It’s a central focus for discussions among local, state, and federal governments, the Reserve Bank, the prudential regulator, and financial institutions. The household debt burden continues to grow, with substantial mortgages spreading beyond Sydney into Brisbane, Adelaide, and Perth.
The proposed solutions appear to involve minor adjustments rather than comprehensive reforms. Both state and federal governments, along with their oppositions, are advocating for an increase in housing supply—specifically, 1.2 million new homes over the next five years. Additionally, Australia’s immigration intake is projected to be halved in the next two years.
The primary regulator, APRA, is standing firm on the 3 per cent serviceability buffer that banks must apply when evaluating loans. While there’s currently no indication of an increase in this buffer, there’s also no suggestion of a reduction, which seems reasonable.
The Reserve Bank is prioritizing job retention since, at this moment, relatively few individuals are struggling with their loan repayments. However, if unemployment rates were to rise sharply, many could find themselves in a position where they might have to surrender their homes to the bank.
There’s little discussion about the impact on household debt when the Reserve Bank begins to lower interest rates, but it’s likely that home values will continue to rise.
Many individuals will probably take that risk.
The next set of data will be released on November 1, and it’s worth paying attention to.