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Australian borrowers can survive higher interest speeds, ANZ's Shayne Elliott states

Shayne Elliott says Australians can handle higher interest rates

November 2, 2022: Many Australian borrowers are on their mortgage refunds, which should ease them from a hard landing as interest rates increase, Shayne Elliott told the chief executive officer at the Australian central bank, ANZ.

The Reserve Bank of Australia has wandered the official cash rate six times this year to 2.6%, forcing mortgage rates from lows of almost 2% to about 5% to 6%. The housing sector is set to bear the brunt of higher interest rates as the central bank fights inflation.

On Thursday, Elliot said that many borrowers would nearly weather these changes, citing that nearly 70% of ANZ’s customers with moving rates had accelerated refunds. That would lower cash-flow pressures on borrowers as rates increase.

“As interest rates decrease over the previous 20 years, what people did is they used their savings to get ahead on their refunds,” Elliot added.

“As of today, 70% of our customers are ahead on their home loan repayments, and half are more than two years ahead.”

“As interest rates rise for many of those customers, nothing changes. Why? They are reducing the quantity of time they are ahead on their repayments. Customers are in pretty good shape.”

Delinquency rates will rise over the next year due to interest rates, cost-of-living strains, and declining property prices.

Moody’s But those with fixed-rate mortgages could face some stress when their mortgage repayments surge in the coming years after the end of their fixed terms. Even then, most people should be able to cope given that banks in Australia held been buffering mortgage applications by 3%, Elliot added.

The central bank noted that high levels of savings during the pandemic and a healthy labor market with high incomes mitigated debt serviceability concerns.

“This, along with forbearance for some borrowers, had resulted in low loan arrears,” the RBA stated.

He stated that customers are not only increasing their savings and paying down their home loans but also other loans, such as credit card loans. Wages of many clients have also kept up with inflation, he added.

“We’re very confident about our home loan book. The site will be delayed because of all those factors I talked about,” he stated.

“As of today, people who are under stress with home loans that are 90 days past due are beginning to fall. So we have not yet seen a pickup in distress.”

Moody’s said in a report this week that while delinquencies over the 12 months that ended in May dropped in most states in Australia, it predicts that “delinquency rates will rise over the next year due to interest rate increases, cost-of-living strains, and falling property prices.”

“Falling house prices will increase the risk of home loan delinquencies and defaults because a weakening housing market will make it harder for borrowers in financial trouble to sell their properties at high enough prices to repay their debt,” Moody’s said.

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