Why the ABC boss is alert but not alarmed by financially troubled borrowers

For example, about 40% of borrowers benefit from low fixed interest rates. Only a small portion of these loans will mature this year. The bulk of these fixed loans pay off in one year to 18 months, which is when these customers will feel the full onslaught of the higher rates. And there remains a significant rump that unfolds in 2024 – by which time the RBA is likely to have started easing rates again.

Add to that the fact that 78% of home borrowers are ahead of their payments and a third of customers are two years ahead.

But there are also 26% who are less than three months ahead – a buffer that could be quickly eroded as rates rise.

In total, CBA mortgage customers have $64 billion in clearing accounts, $19 billion more than before the COVID-19 pandemic.

Over the past year, the bank has also increased its solvency buffers so that new borrowers will have to demonstrate their ability to repay a loan with an interest rate of 8.3%.

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Additionally, the average size of home loans has gone from nearly $400,000 to $375,000 in the space of six months.

That said, the proportion of applicants borrowing at full capacity has increased slightly, but remains at a relatively low level of 8.7%. The others have additional borrowing capacity.

And the largest group of home loan borrowers are those earning between $200,000 and $500,000, and in this bracket, more has been lent to investors than to homeowners.

As of June 2022, 0.4% of the mortgage amount was in negative equity, meaning the loan amount is greater than the value of the property against which it is secured. Most of them are from Western Australia.

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Although this has declined and as such is positive, the continued decline in house prices, which is expected to be around 15% from peak to trough, will cause negative equity to rise. And more than half of the value of home loans sits at a loan-to-value ratio of less than 60%, meaning borrowers have a comfortable cushion of equity.

This explains why the level of arrears has tended to decline over the past two years.

That said, the figures provided by the ABC are a snapshot of the current situation.

By the time we hit peak rates, things won’t be so rosy for borrowers.

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The ABC said it has provisions for what it expects to be the most likely scenarios for rates, economic growth, falling home values ​​and an increase in unemployment.

Over the next few months, the economic picture will become clearer, as will the magnitude of the fallout from rising rates and a slowing economy.

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