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Rising average loan size not a problem, says economist

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residential rent
Reporter 1 minute read

According to one economist, the reported rise of the average loan size in Australia is not a cause for concern, despite continued fears over the ability for borrowers to service their debt.

Senior economist at the Housing Industry Association (HIA) Geordan Murray believes that despite household debt-income levels hitting a record high of 200 per cent, borrowers are not at risk of defaulting on their mortgages.

December Quarter Mortgage Index data collected by comparison website comparethemarket.com.au, in comparison with the Australian Finance Group (AFG), has revealed that the average Australian loan size increased by 26 per cent to $500,446 in the second quarter of the 2018 financial year.

Comparethemarket.com.au spokesperson Abigail Koch claimed that such figures are a worrying sign for borrowers.

“Household debt levels are already at alarmingly high rates, and with the average loan size growing to over $500,000, this indicates that Aussies are willing to take on deeper levels of debt,” Ms Koch said.

However, Mr Murray believes that there “isn’t an issue”, even noting that Australians are still capable of servicing their debt.

“Households are still borrowing within their means, and if they have the capacity to repay them, then there really isn’t an issue with the average [loan size],” the senior economist said.    

“The issue would arise if it turned out that we had a situation where households were overextending themselves, [and there was] an economy-wide issue.”

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Moreover, the senior economist said that there is no evidence to suggest that Australians are at risk of defaulting on their mortgages. 

“At the moment, we certainly haven’t seen any issues with high levels of arrears or levels of default.

“A lot of the analyses of Australia's mortgage books show that a large share of mortgage holders are actually ahead in their repayments, so there’s certainly no evidence to suggest that levels of household debt at the moment are a problem.”

When divided into loan types, the comparethemarket.com.au/AFG data also revealed that 44 per cent are upgraded loans, 28 per cent are held by investors, 22 per cent are refinanced mortgages and 13 per cent are serviced by first home buyers.  

[Related: ‘Major structural change’ in mortgages: AFG]                    

Rising average loan size not a problem, says economist
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