Financial experts are questioning whether an idle housing market and a lending environment that is not competitive could be major threats to Australian home loan repayment rates.
Fitch Ratings, a home loan repayment monitor, reports that Australian repayment rates are slowing down despite Australians having a quick debt repayment record in the past.
Current Repayment Rates
Over the last 10-years, Australian repayment rates have been between 15 and 25 percent, report Fitch. Overseas rates have allegedly dropped to 5 percent. This is a sharp decline when compared to a rate of 15 to 20 percent before the Global Financial Crisis (GFC) occurred.
The Borrower Payment Rate Index, published by Fitch Ratings, suggests that the average repayment rate for Australians is 22 percent. This is higher than historic repayment lows that were hit in March of 2011. But, voluntary home loan repayments have only marginally increased since the GFC.
Changes in Repayment Rates Could Occur
The increase in repayment rates since the GFC are said to be attributed to a competitive lending market and strong housing price growth. However, financial experts are asking, “If these conditions changed would Australian repayment rates also fall?”
Research suggests that changing conditions may have an adverse effect on repayment rates. At present, home loan borrowers are paying approximately 1.5 to 2 percent more off their home, than is required, per annum. The Reserve Bank of Australia (RBA) however has claimed that in the past Australians were paying off their home loans ahead of schedule, and that these repayment rates are high compared to other countries. But the report published by Fitch suggests otherwise, with Australian home loan repayments only marginally ahead of European countries.
Based on these findings, it is felt that a stagnating housing market and uncompetitive lending environment could be major threats to Australian home loan repayment rates. The expected outcome if these changes take place in the lending and housing markets would be lowered repayment rates with Australians tightening-up their household budgets and restricting their spending.
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Written by eChoice