Australian mortgage borrowers may have little capacity to absorb further interest rate increases, with lenders warning that financial stress is becoming increasingly visible following four Reserve Bank hikes this year.
Industry executives say arrears remain relatively contained but household buffers have been steadily eroded by higher mortgage repayments, inflation and weaker real wage growth.
The cash rate now stands at 4.60%, its highest level in around 15 years, after the Reserve Bank lifted rates by another 25 basis points in September.
That increase has pushed variable mortgage rates significantly higher and added hundreds of dollars a month to repayments for many borrowers compared with the beginning of the year.
Further hikes could expose cracks
Mortgage lenders have warned that borrowers may struggle to withstand many more increases before arrears and forced property sales begin rising more noticeably.
Households have already responded by cutting discretionary spending, while consumer confidence remains weak and property prices have fallen across most major capital cities.
Higher rates also reduce the borrowing capacity of prospective buyers, contributing to slower housing turnover and longer selling times.
The challenge for the RBA is that inflation remains above its 2%-3% target even as evidence grows that households are under pressure.
Another rate hike could help contain inflation but would also increase the risk of a sharper slowdown in consumption and housing.
The Australian economy is therefore moving closer to a difficult threshold where further monetary tightening could produce considerably larger consequences than earlier rate increases.
For markets, mortgage stress is becoming an increasingly important signal of how close the RBA may be to the practical limit of the current tightening cycle.
