Most borrowers are well-prepared for higher mortgage rates, says CEO
There’s nothing to fear from interest rate rises, according to ANZ chief executive Shayne Elliott.
This week, the Reserve Bank of Australia hiked the cash rate by 25 basis points and cautioned that more rate hikes were on the way. Elliott said that while the rate hike would hurt some, he was confident that ANZ customers had nothing to fear, The Australian reported. Elliott said the bank’s customers were prepared to absorb the rate hike “relatively comfortably.”
This week’s cash rate hike is the first of what is expected to be a series of rate rises over the next year and a half, a pace not seen in more than 30 years. Economists say that the cash rate could surpass 2% by the end of the year.
Elliott acknowledged that the rate rises are “quite new for a lot of our customers.”
“Many of our customers have never lived through any of that, whether they’re a small business or they’re a homeowner,” he told The Australian.
ANZ, like other big banks, passed on the full 25-basis-point rise immediately to mortgage customers. The higher rates will help shore up profit margins that have been under pressure as the cash rate approached zero, The Australian reported.
Elliott said that more than 70% of the customers in ANZ’s $285 billion home lending book are already ahead on their mortgage repayments.
When rates drop, customers have to ask their banks to reduce their repayments to the new level. That’s a request most people simply don’t make.
“That’s 70% of our customers having done exactly that,” Elliott said. “Now, that means when their mortgage rate rises next Friday, their repayment isn’t going to change.”
Some of those customers are currently two years ahead on their mortgage repayments because they kept repaying at the same level as rates were cut during the COVID-19 pandemic, The Australian reported.
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However, those who just got their mortgages will be more vulnerable to rate shocks because they lack that buffer, Elliott said.
“But having said that, we do assess people for new loans at today’s rate plus 3%,” he said. “So we assume that rates are going to go up 3% from where they are.”
This week, RBA Governor Philip Lowe spoke about the possibility of a cash rate of 2.5% as a possible target for a “neutral” cash rate.
“Even if the governor is 100% right, we’ve assessed people on the basis of a 3% increase anyway,” Elliott told The Australian.
Elliott conceded that some borrowers would feel the pinch of cost pressures, and that house prices could fall as the property market slows.
“There will be cost pressures on people, but on the other hand there is also going to be wage inflation as well,” he told The Australian. “And we’re already starting to see that, so people’s income will be going up as well. It will be very difficult for some, no doubt. But it’s a relatively modest cohort.”
