The share of household income being used to pay interest on debt has fallen to the lowest level in 35 years, freeing up tens of billions of dollars a year to be spent in other ways.
Interest paid by Australian households has dropped to 5.5% of disposable income, the lowest since the mid-1980s, analysis by AMP Capital shows. That compares to 9% in mid-2019 and 13% in 2008.
The decline has been driven by lower official interest rates, which were reduced to an unprecedented low of 0.1% in November.
AMP Capital chief economist Shane Oliver estimates the fall in interest payments as a share of disposable income is injecting an extra $9 billion into the household sector each quarter compared with two years ago. “That in turn has supported consumer confidence and spending,” he says.
Many borrowers have used savings from lower interest payments to reduce debt. The Reserve Bank says “substantial payments” were made into mortgage offset and redraw accounts between March and December last year. This amounted to about $40 billion.