Central Banks


Christopher Kent, Reserve Bank of Australia Assistant Governor (Financial Markets) speaking on The Limits of Interest-only Lending

  • says around A$480 bln interest only loans to expire by 2021
  • most borrowers have managed transition from IO loans reasonably well
  •  share of borrowers who cannot afford step-up in payments is small
  •  some interest-only borrowers will be willing and able to refinance their loans
  • overall impact of transition on household cash flow, consumption likely to be small
  •  says some borrowers may experience genuine difficulties when their IO periods expire

In the search for things to worry about the big lump in interest only housing loans due to expire has reached consciousness, garnering some news and articles etc. The concern is that as lenders switch to principal and interest loans (from interest only) repayments go up  and weigh on household consumption. Also that there will be those on interest only loans that will find difficulty making payments (or even being approved for) principal and interest loans.

Yes, there will be some impact on consumption …. but says Kent:

  • overall impact of transition on household cash flow, consumption likely to be small

Yes, some borrowers will find difficulties, says Kent:

  • some borrowers may experience genuine difficulties when their IO periods expire

The question (beyond the sky is falling chooks with their heads cut off response) is, of course, how big the impacts will be. Kent (and presumably the RBA) sounds confident the impact will be small. Maybe that’s partly his job (to sound confident) and partly real confidence. 



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