Vast majority of borrowers in sound shape: RBA

The Reserve Bank has given three important reasons to be optimistic about the state of Australia's home loans market.

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First, “most households have substantial equity in their homes” and “much less than 1% of loans are estimated to currently be in negative equity (see graph). In the event a household becomes unable to continue servicing their loan, this gives them the option of selling their home and repaying their loan.”

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Second, this kind of forced selling is unlikely, because “most borrowers appear well placed to service their debt and cover essential costs”. The Reserve Bank estimates that less than 2% of variable owner-occupier borrowers are at real risk of not being able to meet their mortgage repayments, either from their income or their savings.

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Third, even if the unemployment rate were to increase by 2 percentage points – which would be much higher than forecasted – “the share of borrowers at risk of running out of savings buffers over the next year or so would likely remain at low single-digit levels”.