Description of Graphs for Speech by I.J. Macfarlane, Governor
‘Do Australian Households Borrow Too Much?’
3 April 2003
Graph 1: Household Debt
The graph shows household debt as a per cent of household disposable income from 1980 to 2002 for a selection of eight countries: Australia, US, Canada, Japan, UK, France, Germany and the Netherlands.
The graph shows that for most of these countries household debt has tended to rise over time as a share of disposable income. Over the past decade, this ratio in Australia has risen from a level that was low by international standards (56 per cent) to one that is in the upper end of the range of other comparable countries (125 per cent).
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Graph 2: Typical Debt to Income Ratios over the Life-cycle
The graph shows two different patterns of movement in the debt to income ratio as the age of the household head increases.
The top panel shows an ‘old pattern’, whereby the debt to income ratio rises sharply in the mid-20s, corresponding to when the household head takes on a mortgage, and gradually declines thereafter as the debt is repaid.
The lower panel shows a ‘new pattern’, whereby the debt to income ratio still rises in the mid-20s, but thereafter follows a gradually declining saw-tooth pattern. The saw-tooth pattern is caused by the ability to refinance the loan or to use new lending products such as home equity loans and mortgages with redraw facilities to top up debt over the lifetime, rather than simply allowing it to decline with principal repayments.
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Graph 3: Debt-Servicing Ratio
The graph shows household interest payments for Australia as a per cent of household disposable income from 1977 to 2002. Two measures of the debt-servicing ratio are shown, one corresponding to total interest payments and one corresponding to mortgage interest payments. The mortgage line lies below the total line.
The graph shows that the total and mortgage debt-servicing ratios have tended to rise over time, with a cyclical pattern that corresponds roughly with the cycle in interest rates. The total debt-servicing ratio peaked in the late 1980s at around 8¼ per cent and is currently somewhat lower than that peak, at around 7½ per cent. The rise in the mortgage line was not as great in the late 1980s as for the total line. The upward trend in this line over the 1990s is also more pronounced than for the total line. The debt-servicing ratio for mortgages is currently around 6 per cent, the highest point in the history of the series shown.
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Graph 4: Gearing Ratio
The graph shows housing debt for Australia as a per cent of household assets from 1977 to 2002.
The graph shows that the gearing ratio has increased from around 10 per cent to just over 20 per cent over the sample, with most of the increase occurring in the 1990s.
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Graph A1: Debt-Servicing Ratio
The graph shows household interest payments for Australia as a per cent of household disposable income from 1977 to 2002. Two measures of the debt-servicing ratio are shown, one corresponding to total interest payments and one corresponding to mortgage interest payments. The mortgage line lies below the total line.
The graph shows that the total and mortgage debt-servicing ratios have tended to rise over time, with a cyclical pattern that corresponds roughly with the cycle in interest rates. The total debt-servicing ratio peaked in the late 1980s at around 8¼ per cent and is currently somewhat lower than that peak, at around 7½ per cent. The rise in the mortgage line was not as great in the late 1980s as for the total line. The upward trend in this line over the 1990s is also more pronounced than for the total line. The debt-servicing ratio for mortgages is currently around 6 per cent, the highest point in the history of the series shown.
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