Big bank chief warns that borrowers will need pay rises or to cut spending if rates hit 4%
Westpac chief executive Peter King said interest rate hikes were a “blunt tool” for curbing inflation as he warned that many borrowers would need a pay rise or to cut their spending to handle mortgage repayments if the cash rate hits 4%.
King made the comments Friday at a trans-Tasman business circle event after Westpac reported a rise in 30-day mortgage and consumer finance delinquencies due to cost-of-living increases and seasonal factors, The Australian reported.
The bank also said it would roll off $92 billion in ultra-low fixed-rate loans over the next 13 months, the publication said.
This month, the Reserve Bank hiked the cash rate to 3.35% – its ninth consecutive rate rise – in its continued bid to tame inflation. The rate rise is expected to spur higher loan losses through the year.
“If we end up at 4% and people haven’t gotten pay rises, or they aren’t able to reduce costs, then there may be issues – but there’s also options for the bank to help customers through that period,” King said. “We’re monitoring closely … The big picture, though, will all come back to unemployment.”
King said he expected inflation to reduce over the coming quarters, The Australian reported.
“It feels like it’s on the way down, [which] is the good news, and I think each quarter from here we will start to see it come down,” he said. “It really is something that we need to get down because the quality of living for a lot of people will reduce if we have prolonged high inflation.”
Economists expect further rate hikes in the months ahead – expectations the RBA has all but confirmed. Those hikes will drive mortgage repayments up even further.
Westpac’s Australian 30-plus day mortgage delinquencies inched up to 1.24% from 1.21% three months earlier, The Australian reported. The same metric for consumer finance rose 13 basis points to 2.92%.
However, King said many borrowers were entering the tougher mortgage climate from a position of strength and downplayed the uptick in short-term delinquencies.
“That tends to happen over Christmas when people go on holidays,” he said. “We’re as best as we can be going into what will be a tougher environment.”
King expected higher loan losses will begin to emerge around the middle of the year due to the time it takes for rate rises to filter down to borrowers, The Australian reported.
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