Guy Debelle: Mortgage arrears

Remarks by Mr Guy Debelle, Deputy Governor of the Reserve Bank of Australia, at the FINSIA Signature Event "The Regulators", Sydney, 15 November 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Today I am going to talk about mortgage arrears. Arrears are an important indicator of the financial health of households and so have implications for our assessment of current economic conditions and the economic outlook. They clearly are also an important indicator of the financial health of those writing mortgages, be it banks or non-banks. I will draw on material published in the October Financial Stability Review and a speech given by my colleague Jonathan Kearns.

The mortgage arrears rate, at 1 per cent, is low by both historical and international standards. Arrears in the US peaked at around 10 per cent in the financial crisis. Non-performing loans currently pose little risk to the health of financial institutions. This is not surprising in an environment where the unemployment rate is low and interest rates have been declining. Nonetheless, the arrears rates have been increasing steadily over recent years to the highest it has been for around a decade, and so warrants some scrutiny.

While the national arrears rate is low, in some parts of the country households have found it harder to keep up with their mortgage repayments. The largest increase in housing loan arrears has occurred in Western Australia and the Northern Territory, where economic conditions have been weak and the unemployment rate has risen (Graph 1).