In the December Financial System Review, we conducted a partial stress-testing simulation to estimate the impact on household balance sheets of a hypothetical 3-percentage-point increase in the unemployment rate. The results suggest that the associated rise in financial stress among households would double the proportion of loans that are in arrears three months or more.
Even without adverse shocks, household debt-service ratios would be expected to increase when borrowing costs return to more normal levels. It is the responsibility of households to ensure that, in the future, they are able to service the debts they take on today. Similarly, financial institutions are responsible for ensuring that their clients do not take on unmanageable debt loads.