{"id":1830,"date":"2024-04-30T05:18:24","date_gmt":"2024-04-30T05:18:24","guid":{"rendered":"https:\/\/actinvest.com.au\/?p=1830"},"modified":"2024-04-30T05:18:26","modified_gmt":"2024-04-30T05:18:26","slug":"australias-debt-service-ratio-extraordinary-cba","status":"publish","type":"post","link":"https:\/\/actinvest.com.au\/index.php\/australias-debt-service-ratio-extraordinary-cba\/","title":{"rendered":"Australia\u2019s debt service ratio \u2018extraordinary\u2019: CBA"},"content":{"rendered":"

The change in the debt service ratio has been \u2018extraordinary\u2019, according to the major bank.<\/strong><\/p>\n

\"\"<\/p>\n

.<\/p>\n

The Commonwealth Bank of Australia\u2019s (CBA) latest report into the Australian household sector when compared to other countries has found that Australia\u2019s debt-to-service ratio currently sits at a record high.<\/p>\n

The debt servicing ratios are based on the methodology derived from the Bank of International Settlements (BIS), which reflects the share of income used to service debt for households, non-financial corporations, and the total private non-financial sector.<\/p>\n

According to CBA head of Australian economics Gareth Aird, the combination of more household indebtedness and a \u201cpredominantly floating rate mortgage market\u201d has seen the debt service ratio rise \u201cmore swiftly in Australia than in any other region\u201d.<\/p>\n

Aird added that the cumulative change in the debt service ratio in Australia since the global co-ordinated tightening cycle began is \u201cextraordinary relative to other jurisdictions\u201d.<\/p>\n

\u201cThe change in debt service ratios captures the impact of the magnitude of the hit to household finance from monetary policy,\u201d Aird added.<\/p>\n

\u201cThe change in the debt service ratio in Australia since 2022 dwarfs that of any other major region due to the structure of the mortgage market and directness of the transmission of monetary policy.\u201d<\/p>\n

The International Monetary Fund (IMF) reflected on this sentiment as fixed-rate mortgages have gained more global prevalence.<\/p>\n

\u201cOur results indicate that monetary policy has greater effects on activity in countries where the share of fixed-rate mortgages is low,\u201d IMF said.<\/p>\n

\u201cThis is due to home owners seeing their monthly payments rise with monetary policy rates if their mortgage rates adjust.<\/p>\n

\u201cBy contrast, households with fixed-rate mortgages will not see any immediate difference in their monthly payments when policy rates change.\u201d<\/p>\n

Furthermore, the effects of monetary policy were found to be stronger in countries where mortgages are larger compared to home values and in countries where \u201chousehold debt is high as a share of GB, according to the IMF.<\/p>\n

\u201cIn such settings, more households will be exposed to changes in mortgage rates, and the effects will be stronger if their debt is higher relative to their assets,\u201d IMF said.<\/p>\n

While Australia\u2019s debt levels remain higher than in most major regions, the Reserve Bank of Australia (RBA) found that the majority of borrowers are\u00a0still able to service repayments on time.<\/p>\n

In its Financial Stability Review \u2013 March 2024, the RBA noted that although housing and personal loan arrears have increased since late 2022, they still remain below pre-pandemic levels, however, the central bank has noticed a rising share of borrowers requesting temporary hardship arrangements from lenders.<\/p>\n

In turn, this has contributed to arrear rates remaining \u201ca little lower\u201d than would have otherwise been the case.<\/p>\n

Australia\u2019s banks expect arrears to continue to rise but still remain at historical lows.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

Adrian Suljanovic
\n15 April 2024
\nmortgagebusiness.com.au<\/p>\n","protected":false},"excerpt":{"rendered":"

The change in the debt service ratio has been \u2018extraordinary\u2019, according to the major bank.<\/strong><\/p>\n","protected":false},"author":1,"featured_media":1831,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[4],"tags":[],"_links":{"self":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts\/1830"}],"collection":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/comments?post=1830"}],"version-history":[{"count":1,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts\/1830\/revisions"}],"predecessor-version":[{"id":1832,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/posts\/1830\/revisions\/1832"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/media\/1831"}],"wp:attachment":[{"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/media?parent=1830"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/categories?post=1830"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/actinvest.com.au\/index.php\/wp-json\/wp\/v2\/tags?post=1830"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}