SYDNEY (Reuters) - Arrears on Australian housing loans are likely to keep rising for a while longer, a top central banker said on Tuesday, but should not pose a risk to financial stability or the economy as long as unemployment remains low.
Speaking in Canberra, the head of the Reserve Bank of Australia’s (RBA) Financial Stability Department Jonathan Kearns noted arrears rates had been rising slowly for several years and were now at their highest since 2010.
The gradual increase was driven by several factors including slow income growth, falling house prices, higher unemployment in some regions of Australia and tighter lending standards.
“While the economic outlook remains reasonable and household income growth is expected to pick up, the influence of at least some other drivers may not reverse course sharply in the near future, and so the arrears rate could continue to edge higher for a bit longer,” said Kearns.
“But with overall strong lending standards, so long as unemployment remains low, arrears rates should not rise to levels that pose a risk to the financial system or cause great harm to the household sector.”
The RBA cut interest rates to a record low of 1.25% earlier this month in large part to try and push unemployment down from the current 5.2% toward a long-run goal around 4.5%.
There has been speculation rising levels of arrears combined with falling house prices, could force owners to sell their homes at a loss and add to the downward pressure on prices.
Yet, Kearns noted that while loans in arrears or impaired had crept up to around 1% of banks total outstanding domestic loans, that meant 99% of mortgages were on, or ahead of, schedule.
The arrears rate in Australia was also much lower than in many other developed nations, including the United States, the UK, Germany, France and Spain.
“Summing up, housing arrears have risen but by no means to a level that poses a risk to financial stability,” said Kearns.
Reporting by Wayne Cole; Editing by Shri Navaratnam