Australia's central bank has painted a cautious but positive outlook for the country's financial system as it grapples with COVID-19.
The Reserve Bank of Australia (RBA) released its bi-annual 'Financial Stability Review' on Thursday, stating while the pandemic has crippled global economies, Australia is well placed to manage a looming recession.
However, Australia's high level of household debt continues to be a longstanding risk to the financial system.
"Surveys indicate that about one in five households only have enough liquid assets to get from one pay period to the next," the RBA said.
"These liquidity constrained households are typically young, twice as likely to be renting and twice as vulnerable to unemployment compared with other households.
"Amongst households with mortgage debt, just under one-third of mortgages have less than one month of prepayments, and about half of these appear particularly vulnerable to a sharp decline in income.
"The most vulnerable include those working in jobs more exposed to unemployment risk, such as casual workers, and those in industries most affected by the COVID-19 containment measures, such as accommodation and food services.
But the RBA said the $200 billion stimulus package, combined with cooperation from lenders, would see many households through the crisis who would have struggled otherwise.
"Repayment deferrals (‘holidays’) being offered by the banks and the Government's recently announced wage subsidy should both help avoid large increases in arrears," it said.
"More generally, tightened lending standards over the past five years or so have improved the quality of outstanding household debt while Government income support policies and access to superannuation balances for the worst-affected households will cushion falls in household income."
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.
Product Features Monthly repayments:
$1,476 Advertised Comparison Product Features Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Smart Booster Home Loan
Monthly repayments: $1,476
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
The bank also had an optimistic outlook for Australian businesses, stating that most had low levels of gearing and significant liquid assets which would help them weather the storm.
"Government and bank support will assist those businesses with sharp reductions in revenue, particularly those for whom income has completely dried up and small businesses with few assets that would otherwise be in a perilous position," it said.
"Commercial property prices have risen faster than rents in recent years given the decline in risk-free interest rates.
"Owners who are more highly leveraged could struggle if tenants are unable to pay rent, particularly in retail property given the very weak retail sector."
With auctions and open houses banned, the RBA echoed the sentiments of many and said there would be very little turnover in the housing market.
However, it would not comment on the effect of the pandemic on house prices.
"The turnaround in housing markets in the second half of last year reduced the risk that falling housing prices would result in widespread negative equity and larger potential losses for lenders.
"Most households now have substantial equity in their homes. It remains unclear how this will affect residential property prices."
The central bank concluded the Australian financial system entered the crisis in a strong position and urged major players to be ready to support the population throughout and after the dust settles.
"It is important that financial institutions remain strong so that they are able to support households and businesses during this difficult period and during the recovery once the health crisis has passed."
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
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