Interest rates: Households cut into mortgage repayments

Households are increasingly cutting back on loan repayments or drawing down on offset accounts in a sign that weak growth is affecting family budgets.

But, with rates still high in Australia, Barrenjoey Capital Partners’ banking analyst Jon Mott told clients that a mismatch between overall credit growth and new lending flow pointed to lower repayments from borrowers.He said that while “housing credit accelerated to 0.45 per cent during April, the strongest in almost two years”, new lending flows had stalled since November, when the RBA hiked interest rates to a decade-high 4.35 per cent.

Westpac revealed its proportion of 30-day arrears went from 1.5 per cent to 1.8 per cent of its housing portfolio between September and March. The bank added, however, that nearly two-thirds of its borrowers were still ahead of repayments by a month or more at its interim results last month.also showed 52 per cent said the financial stress will cause them to reduce their spending, and lenders have been warned to lift their game on hardship provisions.

“Those numbers look to be recovering to where they were before the last interest rate increase,” Mr Mickenbecker said. “There can be mortgage stress, but there are also people who are able to borrow and buy property.”

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