The latest RBA E2 – Households Finances – Selected Ratios – data has been released. The inexorable rise in debt continues. No wonder mortgage stress is rising.
The ratio of household debt to annualised household disposable income , rose to 190.4, the ratio of housing debt to annualised household disposable income rose to 135, and worryingly the ratio of interest payments on housing debt to quarterly household disposable income has risen to 7.0, thanks to the out of cycle rate hikes and flat or falling incomes. Of course failing cash rates helped households out, but the lending standards were not adjusted until too late.
As we highlighted on Friday, the current policy settings are plain wrong. Households are being hung out to dry. The debt overhang will bite harder as mortgage rates rise, and this will have a direct impact on spending power, and thus economic growth.
Time to tighten lending rules further, and add a counter cyclical capital buffer. Get on with it APRA! And apply some debt-to-income rules.
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