RBA recognises mortgage stress

RBA GOVERNOR Glenn Stevens has acknowledged that recent rate rises have put significant pressure on borrowers.

RBA recognises mortgage stress

RESERVE Bank  governor Glenn Stevens has acknowledged that house prices are high relative to household income and that recent rate rises have put significant pressure on households.

”Housing prices are very, very high relative to income,'' Mr Stevens said in response to a question from the House of Representatives joint standing committee on economics in Sydney.

He said high housing prices reflected both demand and supply issues, although the latter was becoming more apparent.

“These supply things, the more time goes on the more it becomes apparent there are issues there,'' he said.

High rates pressuring households

Mr Stevens acknowledged that recent interest rate rises by the RBA had put more pressure on borrowers generally.

“There's no doubt there's a significant number of people feeling pressure,'' he said.

“There are more of them now than a year ago because of interest rate rises.''

The central bank has raised official interest rates in August, November, February and March to contain inflationary pressures in the economy driven by very strong domestic demand.

“People are affected by higher interest rates - I know that,” Mr Stevens told the committee.

“I do not have an instrument that only affects some people and not others, and neither does anyone else.”

Stressful times

Mr Stevens said the old definition of mortgage stress where the bottom 40 per cent of income earners were spending more than 30 per cent of their income on their home loan repayments was a better gauge of mortgage stress than the current gauge, which covers anyone who spends more than 30 per cent of their income on home loan repayments.

“Those on a high income who choose to have a high mortgage, they could be defined as being in stress,'' he said.

“There are people in mortgage stress, there are people in rental stress.

“There also has been a significant share of low income people in that position.

Inflation problems

Mr Stevens rejected comments that inflation was out of control.

“One can't say there isn't a problem. There is a problem. But I don't think it's out of control.”

Mr Stevens said the public should be patient, as the central bank works to reduce inflation.

“These things take time and we have to be patient,'' he said.

“I think it (inflation) will come back ... I don't think you can say it will come down very quickly or very soon.”

Defending the banks

Mr Stevens said earlier at the hearing that it was better for Australian banks to be in a position where they were charging higher lending rates and being well capitalised than banks in other parts of the world where they were unable to lend.

“While I know in some ways people feel aggrieved that banks are highly profitable, there are other banks around the world that are bearing large losses and because of that, they're not in a position to make loans.

“If you assess what's more preferable, the banks we have are far more preferable.''