Mortgage interest payments collapse to 33-year low

The Reserve Bank of Australia (RBA) yesterday released household finance data for the June 2021 quarter.

These data showed that the ratio of household and mortgage debt to disposable income edged up to 183.8% and 140.5% respectively during the June quarter:

Household debt is driven by homeowner mortgages, where debt levels hit a record 102.1% of household disposable income during the June quarter, while investor mortgage debt is fell to 38.4% of disposable household income:

Australian household debt to income

At the same time, the collapse in mortgage rates pushed the ratio of interest payments as a percentage of household disposable income to the lowest level on record (September 1988), as the following graph illustrates:

Australian household interest payments

Specifically, the household debt-to-income ratio fell to 5.7% in June 2021, less than half of the peak of 13.3% in December 2008.

Similarly, the mortgage debt-to-income ratio fell to 4.7% in March 2021, less than half of the 10.6% peak in December 2008.

Separate data from the Bank for International Settlements shows that debt repayments (principal and interest) as a percentage of household disposable income fell to a 17-year low of 13.4% in the March 2021 quarter, or 4.2% less than the peak of June 2008. 17.6%:

Australian debt repayment to household income

Finally, the ratio of real estate assets to disposable income reached a record level of 598%, more than double what it was in 1996:

Australian real estate assets to income

In summary, Australian households as a whole are doing well despite their high debt load. Problems will only arise when mortgage rates start to rise.

Unconventional economist
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