A house price crash has been rated as a low to medium risk of occurring in Australia, according to the latest Financial System Stability Assessment report from the International Monetary Fund (IMF).
The report does note that the banking sector is heavily exposed to the housing market, with residential mortgages the banks’ single largest asset, but says the financial system is buffeted from an “unlikely” house price collapse because the household sector is not highly leveraged.
The report says an average loan to value ratio of 50% on mortgages provides the Australian financial system with “a buffer against a large decline in house prices”.Click to enlarge
In addition, the IMF notes the differences in the Australian mortgage market compared with other countries and the propensity of borrowers to pre-pay their mortgages.
“[In Australia] there is no tax incentive for owner-occupier debt, and prepayment on housing loans is prevalent and sizable.
“Mortgages are full recourse loans, giving borrowers an incentive to continue making payment even under stress,” the IMF adds.