PHOTO: Reserve Bank of Australia (RBA)
As more people take on dangerous levels of debt, the Reserve Bank of Australia (RBA) has issued a chilling warning to the nation’s homeowners, urging them to have a mortgage “buffer”.
Almost a quarter of people with a new loan owed the bank at least six times what they earned, official data from the banking regulator has revealed. And, with the median Australian house and unit price now at $698,170, an average-income earner would struggle to repay their loan.
Even with a 20 per cent deposit, a full-time worker on a $90,329 salary with a $558,536 mortgage would have a debt-to-income ratio of 6.2 – considered “dangerous” by the Australian Prudential Regulation Authority (APRA).
New data released on Tuesday showed that 23.8 per cent of new borrowers in three months to September 30 of this year were in this category – up from 16.3 per cent 12 months ago, and 21.9 per cent from the previous quarter – as buyers took advantage of lower interest rates to chase soaring property prices higher.
Aussie homeowners have been urged to have a mortgage “buffer” by the Reserve Bank of Australia. Picture: NCA NewsWire/David Swift
While the RBA left the cash rate on hold at a record low of 0.1 per cent – and is expected to do so until late 2023, potentially 2024 – governor Philip Lowe had a warning for borrowers.
“With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers,” Dr Lowe said.
Research director at RateCity, Sally Tindall, noted that “Australians are increasingly taking on eye-watering levels of debt compared to what they earn to get into an overheated property market”.
“Record-low rates have enabled Australians to borrow more from the bank than ever before,” she said.
Australian Reserve Bank governor Philip Lowe. Picture: James Brickwood
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