Add Category
Business reporter Michael Janda has been reading through the RBA's financial stability review and the headline is — some home loan borrowers are facing a serious risk of default, but the Australian banks will comfortably survive any losses.
In October's review, the RBA modelled what would happen to household budgets, should the cash rate hit 3.5 per cent.
Well, that ship has sailed, with the cash rate sitting at 3.6 per cent.
"Given that last year’s modelling assumed a cash rate of around 3.5 per cent and the latest model uses a 3.75 per cent cash rate, it is unsurprising that the results remain very similar.
"In the baseline scenario, the share of borrowers with negative spare cash flow – that is, those whose scheduled mortgage repayments and essential living expenses are projected to exceed their household disposable income – would reach around 15 per cent by the end of 2023, with many of these borrowers already projected to be in this position under the assumptions used in this model," the RBA noted.
"This 'baseline scenario' also assumes that unemployment rises only slightly from current levels, that incomes rise by 4.25 per cent and living costs increase 4.75 per cent this year.
"The bank also modelled an 'adverse scenario' where, even though rates remain at 3.75 per cent, unemployment climbs a couple of percentage points to 5.5 per cent by year’s end, underemployment also rises 2 percentage points and both wages growth and inflation are lower than the baseline forecast, by 0.75 and 1 percentage point respectively.
"In the adverse scenario, the share of borrowers experiencing negative spare cash flows by December 2023 would increase slightly to 17 per cent," the bank forecast.