Consumer debt and interest

Unpublished data from the Reserve Bank show that recent interest rate increases have had little effect on the growth in consumer debt. Households’ debts for the purchase of housing reached a reached a record 86 per cent of disposable income in the September quarter. While debt for other purposes fell, the rise in housing debt pushed total debt to 105 per cent of disposable income. Housing debt has risen inexorably from less than a quarter of disposable income in the early 1980s.

During most of the 1990s, rising debt was accompanied by historically low mortgage interest rates, so that the share of household income taken by interest costs did not rise in line with debt levels. But the recent increases in interest rates coupled with ongoing increases in households’ mortgage debt have seen total interest costs as a share of disposable income rise to almost 6 per cent - more than when banks’ standard variable home loan interest rates peaked at 17 per cent in 1989.