Most home loan borrowers on fixed rates are well placed to manage higher repayments when their fixed terms expire and they move to variable rates, the big banks reported in their March half financials.
Based on expiries to date, the big shift from fixed-rate loans to variable-rate loans with higher interest rates has not led to any significant increases in arrears or hardship.
NAB chief financial officer Gary Lennon said early indications are that borrowers going from fixed rates to variable rates are going into arrears at about the same rate as the total book.
NAB reported that A$32 billion of fixed rate-loans on its books expired in the 12 months to March and converted to variable rates.
It said $30.5 billion of fixed rate loans will expire in the six months to September and another $25.7 billion in the six months to March 2024.
All NAB fixed-rate loans originated in the past two and a half years were assessed on a principal and interest basis using a floor of at least 4.95 per cent (and 5.75 per cent after September 2022) or a buffer of at least 2.5 per cent (3 per cent from November 2021), whichever was higher.
The bank is forecasting that at a cash rate of 3.85 per cent, the increase in average monthly repayments at conversion will be $943.
So far, expiries have not led to any significant increase in arrears. NAB’s 90-days arrears have fallen from 93 bps in the March half last year to 73 bps in the September half and 67 bps in the latest half.
The proportion of customers with offset and redraw balances representing more than one month’s repayments has remained steady at 66.4 per cent. The average offset and redraw balance multiple of monthly repayments has fallen from 45.6 months to 41.2 months over the past six months.
Westpac reported that $19 billion of fixed rate loans expired in the March half last year, $20 billion in the September half and $19 billion in the latest half.
In the current half (six months to September) another $55 billion of its fixed rate loans will expire and in the six months after that another $40 billion.
The bank estimates that the average interest rate step-up as borrowers move to variable rates in the six months to September will be 370 bps. The increase in repayments will be greatest for those loans originated between August 2019 and June 2022, when rates were at their lowest.
Westpac’s fixed rate book has slightly different characteristics from the variable rate book. More first home buyers are on fixed rates, which means the average income level is lower and loan-to-valuation ratios are higher.
As with NAB, expiries have not led to any significant increase in arrears. Westpac reported 90-day arrears fell from 88 bps of the Australian mortgage book in the March half last year to 75 bps in the September half and 73 bps in the latest half. In the March half 2019, before COVID, the 90-day arrears rate was 82 bps.
However, 30-day arrears picked up, rising from 121 bps in the September half last year to 139 bps in the latest half. In the March half 2019, the 90-day arrears rate was 159 bps.
Westpac also reported that the proportion of customers in hardship fell in the March half.
Offset balances grew during the half and the proportion of loans “on time” or less than one month ahead remained steady.
The bank’s biggest concern is with borrowers whose LVR is above 90 per cent and whose repayment buffer is less than three months, but this group accounts for only $3.1 billion of loans.
ANZ reported that $14 billion of fixed-rate loans expired in the March half last year, $27 billion in the September half and $18 billion in the latest half.
In the current half, another $20 billion of fixed-rate loans will expire and in the six months after that $24 billion.
The bank has tracked the 30-day arrears rate of fixed rate borrowers moving to variable rates since April last year and found that, at the end of March, the arrears rate for those borrowers was lower than the portfolio average.
The proportion of borrowers with offsets increased during the half, from 68 per cent in the March half last year to 70 per cent, and the value of offset balances rose from $38 billion to $41 billion, representing 14 per cent of the book.