Australia's financial system is exposed to risks associated with the housing market and high household indebtedness, warns the RBA.
In its April Financial Stability Review, the RBA said that vulnerabilities related to household debt and the housing market in general have increased over the past six months.
"Household indebtedness has continued to rise and some riskier types of borrowing, such as interest-only lending, remain prevalent," said the RBA.
"Investor activity and housing price growth have picked up strongly in Sydney and Melbourne," said the report.
The RBA highlighted the "large pipeline of new supply" that it said is weighing on apartment prices and rents in Brisbane – along with the "weak" housing market conditions in Perth.
"Nonetheless, indicators of household financial stress currently remain contained and low interest rates are supporting households’ ability to service their debt and build repayment buffers," said the RBA.
The Financial Stability Review also included a section titled Characteristics of Highly Indebted Households, which found that over the 10 years to 2014 35-40 per cent of households had a debt-to-income ratio of above 550 per cent.
The data, which comes from the 2014 Household, Income and Labour Dynamics in Australia (HILDA) Survey, provides a picture of owner-occupied mortgage debt.
"While the median debt-to-income ratio of the top 10 per cent of indebted households increased sharply from around 600 per cent to over 750 per cent between 2002 and 2006, it was little changed between 2006 and 2014," said the RBA.
"Highly indebted households steadily became more leveraged between 2002 and 2014, with the median debt-to-asset ratio of these households rising from around 50 per cent to just under 60 per cent."
The HILDA survey also found that highly indebted households are more vulnerable to negative economic shocks, less likely to be ahead of schedule on their mortgage repayments and more likely to experience financial stress.
"The consequent effects of this stress on the broader economy may be exacerbated by the disproportionately large share of investor housing debt owed by highly indebted households," said the RBA.
However, the RBA pointed out that much of the debt held by highly indebted households is owed by households with high income and wealth, who are "typically better placed to service larger amounts of debt".
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