A study by Reserve Bank of Australia researchers urges both lenders and regulators to keep their eyes open to prevent borrowers from getting into trouble.
The study looked which borrowers, and which types of loan, ended up falling more than 90 days behind.
The findings of the paper were the views of its authors, Matthew Read, Chris Stewart and Gianni La Cava, rather than the official position of the RBA.
Even so, the topics of the papers can be a guide to what may be concerning the central bank at any given time.
Luci Ellis, head of the RBA's financial stability department was first on the list of RBA staff the authors thanked for their help with the paper, suggesting the vulnerability of indebted households is a concern for the RBA.
The authors said their findings reinforce the importance of careful monitoring of changes in lending standards.
And they urged lenders to maintain sound documentation and banking supervisors to monitor changes in the low-doc lending space.
Here are the key findings:
The higher the loan is as a proportion of the property value when the loan is taken out, the greater the chance the borrower will fall behind.
* The probability of falling behind is particularly high for loans greater than 90 per cent of the property valuation.
* The probability of a loan going into arrears is lower for loans that are repaid relatively quickly.
* Low-documentation loans are more likely to go into arrears.
* The higher the starting interest rate, the higher the chance the loans will go into arrears (probably because banks charge higher rates for borrowers they see as riskier, the authors say).
* The probability of missing a mortgage payment is particularly high for households with relatively high repayments compared with their incomes.
* Households that have previously missed a payment are also much more likely to miss more payments.
