Most fixed-rate borrowers face a "step" rather than a "cliff," exec says
Westpac’s head of consumer and business banking expects that most borrowers facing the end of their fixed rates will handle the transition fairly well, although the bank is preparing to see some loan stress.
The major banks are seeing a refinancing wave as borrowers who fixed when interest rates were at record lows see their terms expire, The Australian reported.
The Reserve Bank has hiked rates seven times this year, raising them from a record low of 0.01% to 2.85%. Most banks have passed on the hikes in full, meaning borrowers whose fixed rates are expiring are preparing for steep increases.
Westpac’s Chris de Bruin said the bank was mobilising some of its hardship and loan resources to help borrowers “in anticipation of challenges.”
“None of it is arriving at this point; we have astonishingly good credit quality right now,” de Bruin told The Australian. “But nonetheless, the mathematics of rate increases tell you … that hurts the more vulnerable the customer is. We still see prospectively there is more stress to come.”
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De Bruin said that with the expectation of even more rate increases by the RBA, the buffers banks built into mortgage serviceability assessments last year were “about to be exhausted.”
However, with 68% of Westpac’s mortgage customers ahead on their repayments, de Bruin said he predicted that most borrowers facing the end of their fixed term would handle the transition well.”
“There is no cliff; what is happening is for an individual you still have to do the step,” he said. De Bruin added that Westpac was engaging with customers on the fixed-rate change over and seeing an 86% retention rate.
While competition for refinance customers among the big banks has become cutthroat, de Bruin told The Australian that Westpac would “compete sensibly”.
While banks have been benefiting from rising interest rates, analysts have pointed out that fierce competition for refinance customers would chip away at those gains.
