How Stricter Lending Policies Helped Reduce Australian Household Debt

The Reserve Bank governor, Philip Lowe recently said that the stricter lending policies have helped reduce household debt at his address to the Australia-Israel Chamber of Commerce. He also stated that even with household debt continuing to climb, the tighter credit practices have helped relieve such risks.

Philip Lowe said, “A serious escalation of trade tensions would put the health of the global economy at risk and damage the Australian economy. We also have a lot riding on the Chinese authorities successfully managing the build-up of risk in their financial system. Domestically, the high level of household debt remains a source of vulnerability, although the risks in this area are no longer building, following the strengthening of lending standards.”

The RBA chief says he “does not see a strong case for a near-term adjustment to monetary policy, but that “it’s more likely that the next move in the cash rate will be up.” He did warn that an interest rate hike could shock some Australians, since the last increase occurred over seven years ago.

He believes that when interest rates are increasing, it is a sign of a strengthening economy and income growth.

Mr. Lowe concentrated on the “dispersion in house prices” happening across Australia, which was the primary focus of the address. “The picture is pretty clear: the dispersion in housing prices is currently larger than it has been in a very long time,” he said, “This mostly reflects the big run-up in housing prices in Sydney and Melbourne at a time when price growth in the rest of the country has been subdued.”

The RBA head further notes that there is an increase in inter-state migration, which has been driven by the high property prices across the eastern seaboard. “When prices increase a lot on one area, relative to another, some people relocate to where prices are lower, especially if jobs are available,” said Mr. Lowe.

It’s worth noting, as Mr. Lowe did, that inter-state migration did occur between the late 1990s and early 2000s when several people moved from New South Wales to Queensland after the substantial housing price increases across Sydney.

He advised that “It’s too early to tell whether the same type of adjustment will happen this time, but the number of people moving from New South Wales, where housing prices are highest, to Queensland (and, to a lesser extent, Victoria) has begun to pick up.”

While speaking in Perth, RBA governor Lowe mentioned the lower amounts of property investment in Western Australia. The RBA head clarified, “One area, though, that does remain weak in investment in dwellings, with the level of activity here in the west standing in contrast to the high level of dwelling investment in the eastern states.” Queensland news, reports that Australians need to be aware of the inevitability of an interest rate hike after being accustomed to the historically low rates in place now, which reiterates the RBA governor’s address.

Have the stricter debt lending standards affected your household?

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