Serviceability resilience ‘surprising’ in high rate environment: CoreLogic

CoreLogic head of research Eliza Owen said the Australian Prudential Regulation Authority (APRA) September quarter data on the quarterly authorised deposit-taking institution (ADI) property exposures has revealed that households continue to resist climbing mortgage repayment costs in a higher rate environment.

“The data showed a continued resilience in households’ ability to service higher mortgage costs. Although rising, the non-performing loan rate lifted to a marginal 0.80 per cent of outstanding housing credit,” Ms Owen said.

“The portion of housing loans that were 30–89 days past due also increased, to just 0.54 per cent of loans.”

Ms Owen further stated that this resilience in mortgage serviceability “may seem surprising” given the Reserve Bank of Australia (RBA) sharply increasing mortgage rates since last year.

“Using the average owner-occupier mortgage rate reported by the RBA for September and assuming the November rate rise is passed on in full, the average variable rate may now be around 6.25 per cent,” she said.

“For a borrower with a $750,000 loan in April 2022, this has added an estimated $1,690 per month to variable rate mortgage repayments.

“However, economic data suggests households are continuing to cope through reduced savings, potentially working more hours, and putting less towards mortgage savings buffers and more towards scheduled repayments.”

Rates put on hold to close out the year

Indeed, throughout 2023 alone, the RBA increased interest rates a total of five times, with the most recent increase occurring after the November monetary policy meeting that saw the official cash rate reach 4.35 per cent, up 425 bps from the historical low of 0.1 per cent.

The December monetary policy meeting saw the RBA choose to hold the cash rate steady at 4.35 per cent to “allow time to assess the impact of the increases in interest rates on demand, inflation, and the labour market,” according to RBA governor Michele Bullock.

Following the December decision, Ms Bullock stated: “Higher interest rates are working to establish a more sustainable balance between aggregate supply and demand in the economy. The impact of the more recent rate rises, including last month’s, will continue to flow through the economy.”

3% serviceability buffer remains

Prior to this, APRA reiterated that its 3 per cent mortgage serviceability buffer remained appropriate in order to ensure “prudent lending standards”.

The regulator took into account several factors such as cost-of-living pressures, domestic and international outlooks, and the potential uptick in borrowing expenses.

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