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A Credit Suisse report looked at the discrepancy between rising principal payments and disposable income levels, finding that debt servicing payments account for 21 per cent of disposable income – just below the GFC peak of 23 per cent.
However, according to AMP chief economist Shane Oliver, these reports are nothing new and should be no cause for concern.
“I just thought some of their modelling was a bit exaggerated in the sense that when you look at the level of interest payments it is back to where it was at the end of the 1990s,” Mr Oliver said. “Interest payments are actually quite low,” he said.
Importantly, Credit Suisse added in the principle payments in their analysis, which Mr Oliver admits are relatively high.
“But not just because the debt levels are higher; it is also because people are paying down their debt faster at the moment to take advantage of the low interest rates,” he said.
“These sorts of stories have appeared before but in the end it is not as big of an issue.”
Mr Oliver added that the Reserve Bank is well aware of the issues discussed in the Credit Suisse report.
“The implication seems to be something along the lines of ‘people have bigger mortgages therefore more of them are going to default when interest rates go up’,” he said.
“But the trouble is the Reserve Bank has done its own analysis, they know all of this, and interest rates don’t go up as much as one might fear.”
For a big increase in defaults to occur, the RBA would need to make a big mistake, which is very unlikely, Mr Oliver added.