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The home loan arrears rates are increasing at the major banks, as high interest rates and cost-of-living pressures squeeze lower-income earners and the highly leveraged.
With many lenders releasing their financial results, a growing trend is emerging: arrears rates are on the rise.
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This morning (Monday), Westpac released its 3Q24 results, revealing mortgage delinquencies for Australia had risen 6 bps to 1.12 per cent. According to the major bank, 30+ day delinquencies had also risen to 1.90 per cent.
Westpac chief executive officer Peter King noted: “The cost of living and high interest rates remain a challenge for some customers while many businesses are facing cost pressures and experiencing lower demand. We encourage customers to call us if they need help.”
The Commonwealth Bank of Australia (CBA) released its full-year results last week, revealing that the proportion of home loan arrears of 90 days or more had reached 0.65 per cent of its portfolio, up 18 bps from the same period last year (0.47 per cent).
The arrears rate is the highest it has been for three years; however, CBA said that it is equivalent to the historical average (0.65 per cent) taken from data gathered between August 2008 and June 2023.
Moreover, the figure is 3 bps lower than the number of home loans in arrears of 90 days or more pre-pandemic; it was 0.68 per cent in June 2019.
The highest proportion of CBA borrowers in arrears is based in Victoria (32 per cent), followed by NSW (30 per cent), according to the data.
The bank said: “Consumer arrears increased reflecting the impact of higher interest rates and cost of living pressures on some borrowers.”
However, the vast majority of CBA mortgage customers are in advance of repayment schedule, with average payments in advance 29 months ahead of schedule.
Approximately $134 billion of funds are sitting in redraw and offset accounts (with more than half in offsets), a number that continues to grow each financial year since the pandemic.
Similarly, on Friday (16 August), National Australia Bank (NAB) released its third-quarter earnings update, revealing that the number of non-performing loans rose 11 bps during the June quarter to 1.31 per cent, compared to 1.20 per cent for the quarter ended March 2024.
NAB said this reflects “broad-based deterioration in the Business & Private Banking business lending portfolio, combined with higher arrears for the Australian mortgage portfolio”.
The ratio of non-performing exposures to gross loans was 25 bps higher than 3Q23 (1.06 per cent) and 35 bps higher than 3Q22 (0.96 per cent).
This modest increase comes as the major bank reported a rise in its lending balance, up 1 per cent, supported by 3 per cent growth in lending to Australian SME businesses.
In NAB’s update, CEO Andrew Irvine acknowledged the economic environment, including persistent inflationary pressures, has been challenging some customers.
“While most customers are proving resilient, not unexpectedly we have seen asset quality deteriorate further in 3Q24,” Irvine said.
“It is essential we keep our customers and our bank safe. Liquidity and collective provision coverage are healthy. Capital remained strong over the quarter supporting the continuation of our on-market share buy-back.”
While the arrears rate is rising, several commentators have said that these remain relatively low and many households maintain a savings buffer.
In March 2024, the Reserve Bank of Australia’s Financial Stability Review said most borrowers have been able to service their debts thus far.
“This is expected to remain the case even if budgets are under pressure for some time. Few borrowers are in negative equity on their mortgage, limiting the impact on lenders in the event that some default,” the RBA said.
Similarly, the RBA governor Michele Bullock told the House of Representatives standing committee on economics on Friday (16 August) that mortgagors are continuing to try and “put away a bit extra” in redraw and offset accounts (even though it may be less than previously) as they are incentivised to do that because the interest rate they are paying on that debt is higher.
“So where they can, they are trying,” she said.
[Related: Borrowers cutting back on travel to pay mortgages: NAB]
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