Australia’s biggest mortgage provider, Commonwealth Bank, showed off its credentials as a conservative lender in its 2021/22 results presentation pack, detailing the small proportion who borrow at capacity, increases in its serviceability buffer and floor rate, and falling average loan amounts and LVR.
It has assessed the resilience of the portfolio to cash rate increases and found that a significant proportion of borrowers would not need to increase repayment, even if cash rates rose 260 basis points.
CBA said the proportion of home buyers borrowing at capacity remained low – 8.7 per cent in the June half, compared with 8.3 per cent in the December half.
Last year, the bank increased its serviceability buffer from 2.50 per cent to 3 per cent and its minimum floor rate from 5.1 per cent to 5.25 per cent. And over the past year it introduced restrictions on high loan-to-valuation and high debt-to-income ratio loans.
Average loan size rose from A$373,000 in the June half last year to $399,000 in the December half, before dropping back to $375,000 in the latest half.
Offset account balances rose from $57 billion in the June half last year to $66 billion in the December half, but then fell back. Little to $64 billion in the latest half. Thirty-four per cent of borrowers are more than two years ahead with their repayments, while 21 per cent are paying on time.
The dynamic LVR of the portfolio fell from 49 per cent to 44 per cent over the year.
Mortgagee in possession accounts for 2 basis points of the portfolio, unchanged from last year. The proportion of loans in negative equity fell from 1.2 per cent in the June half last year to 20 bps in the latest half.
Home loan arrears (overdue by more than 90 days) were 49 bps – down from 64 bps in 2020/21 and 63 bps in 2019/20.
As to the effectiveness of prepayments in providing a buffer against rising rates, the bank has calculated that in the event the cash rate rises to 260 bps, 20 per cent of its borrowers with direct debits above the minimum monthly payment would not have to increase their payments.
An area of concern is the large number of people who took out low fixed rate loans over the past couple of years and will soon see those loans roll off. CBA said 39 per cent of its loans are fixed rate: 13 per cent will roll off by June next year and 26 per cent after that date.