About 40 percent of borrowers have low fixed interest rates. Only a small portion of these loans will mature this year. The majority of these term loans expire in a year to 18 months, at which point these customers will feel the full rush of higher interest rates. And there remains a sizable hull unrolling into 2024 — by which time the RBA would likely have started cutting rates again.
In addition, 78 percent of home loan borrowers and a third of customers are two years in advance with their payments.
But there are also 26 percent who are less than three months ahead — a buffer that could quickly be depleted if interest rates rise.
Overall, CBA mortgage customers have $64 billion in settlement accounts — $19 billion more than before the COVID-19 pandemic.
Over the past year, the bank also increased its easement buffers, requiring new borrowers to show they are able to service a loan with an 8.3 percent interest rate.
Additionally, the average home loan size has dropped from nearly $400,000 to $375,000 in six months.
However, the proportion of borrowers with capacity utilization has increased slightly, but remains at a relatively low level at 8.7 percent. The rest have additional credit capacity.
And the largest group of home borrowers are those earning between $200,000 and $500,000, and within that range, more has been lent to investors than to owner-occupiers.
As of June 2022, 0.4 percent of the amount as mortgages was in negative equity – meaning the amount of the loan is greater than the value of the property it is secured against. Most of these are from Western Australia.
While this has been falling and as such is positive, the continued fall in home prices, which is expected to be around 15 percent from peak to trough, will cause negative equity to increase. And more than half the value of home loans is at a loan-to-value ratio of less than 60 percent, meaning borrowers have a comfortable buffer of equity.
This explains why the level of arrears has been decreasing over the past two years.
However, the numbers provided by CBA are a snapshot as of today.
By the time we reach peak interest rates, the picture for borrowers is not so rosy.
CBA said it has provisions in place to deal with what are likely to be the most likely scenarios of interest rates, economic growth, the decline in home values and a rise in unemployment.
In the coming months, the economic picture will become clearer, as will the magnitude of the impact of higher interest rates and a slower economy.
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https://www.smh.com.au/business/banking-and-finance/why-cba-boss-is-alert-but-not-alarmed-about-financially-stressed-borrowers-20220810-p5b8rv.html?ref=rss&utm_medium=rss&utm_source=rss_business Why CBA chief is vigilant but not concerned about financially distressed borrowers