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About $25 billion of NAB’s fixed-rate loans will mature in the first half of this year, with another $50 billion in the second half, the bank’s chief economist has revealed.
As the broking industry works hard to prepare borrowers rolling off their super-low fixed-rate loans, the size of the ‘fixed rate cliff’ is coming into focus.
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While the Reserve Bank has previously flagged that there is around $350 billion of fixed loans across around 800,000 loan facilities coming off this year, major bank National Australia Bank (NAB) has revealed that it will see around $75 billion of fixed loans maturing this year.
Speaking on a NAB Commercial Broker Economic Update on Tuesday (21 March), NAB’s chief economist Alan Oster told broker viewers that NAB had around $25 billion of fixed loans maturing in the first half of this year, with another $50 billion maturing in the second half.
According to the chief economist, the peak will occur in June of this year.
However, he noted that an additional $20 billion is expected to roll off into next year, too.
Mr Oster said: “I’ve seen numbers like 800 million across the system ... so these are big numbers. And these are people that are going to be going from rates of less than 2 [per cent] to variable rate loans of around 5.5–6.0 per cent, depending on what the RBA does. So it's taking the best practice of two grand out of [a borrower’s] monthly salary, and so that will hurt.”
The chief economist added that it was hard to predict how consumers will respond to this new cost burden, suggesting that ‘applied psychology’ was a key factor when it comes to understanding behaviours.
“You don’t know what’s going to happen when consumers see that they have run out of liquidity and their major asset; their home, is worth less. A lot of people will say ‘things are picking up now’ ... but if you look at turnover, turnover is down about 15–20 per cent. So if you are getting yourself into trouble, you’re going to have to sell [your house]. And if you then flood the market, then that probably means that house prices will keep going down,” Mr Oster said.
However, Mr Oster added that the “good news" is that unemployment is still very low (around 3.5 per cent) and that peak inflation has already passed.
The chief economist said that a lot of focus was now on what the Reserve Bank of Australia (RBA) will do to the cash rate when it meets next month (4 April).
He explained that the banking crisis in the US had caused more complexity when it comes to forecasting: “Prior to the financial crisis, that’s been sort of hitting [the US] the last two weeks. We had rate rises next month (April), and then May, which takes us to 4.1 per cent… [but] now we don’t know, is the honest answer.
“It’s a lot more complicated ... If there is another ‘wounded gazelle’ out there somewhere, and there is a run on it, and things are still worried, then the [RBA] will be on a pause and on the watch,” Mr Oster said.
He continued, however, that if the RBA does pause in April to take stock of the impacts of the financial markets, he suspected that they will hike again in May and June — particularly as he expected the next quarterly inflation data to show that inflation was still running high.
Mr Oster said: “I’m a bit more inclined to say, well, provided this thing doesn’t get into trouble ... that the RBA might have a couple [more hikes] to go, but they’re getting close on the other side.
“Maybe they do a pause if things are still upset in April… but — depending on the local data — we think they’re not finished [on their hiking cycle].
“We think they’ll do at least one more [rise], so it may either get you to 3.85 or 4.1 per cent, and then go to rate cuts.
“Famous last words here, but I don’t expect to see the financial problems continuing for the next three weeks.”
[Related: RBA in the dark about fixed-rate borrower savings]
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