Two of Australia’s biggest mortgage lenders have played down the risks to home loan borrowers as interest rates start to rise, saying their mortgage portfolios are well positioned for higher rates and higher cost of living.
NAB and ANZ released their half-year financial reports last week, which included details of the composition and performance of their home loan books.
NAB said only 8 per cent of Australian home loan borrowers in its A$322 billion portfolio borrowed at capacity.
All loans originated over the past two years were assessed on a P&I basis (even if they are interest only) using a floor rate of at least 4.95 per cent or a buffer of at least 2.5 per cent (and 3 per cent since November 2021), whichever is higher.
The average dynamic loan-to-valuation ratio of loans in the portfolio is 37.9 per cent – down from 42.3 per cent over the 12 months to March. The average LVR at origination is 69.5 per cent, which has remained consistent over the past couple of years.
Sixty-seven per cent of home loan borrowers are ahead with their repayments and the average number of months in advance increased from 45 to 48 months over the past year. NAB has $38 billion in offset account balances.
The proportion of home loans past due by 90 days or more plus impaired home loans as a proportion of total home loans sits just over 1 per cent, which is down over the past 12 months and in line with its level in pre-pandemic years.
The loss rate on the portfolio was 1 basis point in the March half-year – in line with the two previous halves.
One metric that might be a red flag is that 72 per cent of fixed rate loans will expire by March 2024, which means that these borrowers are almost certain to be refinancing at higher rates. NAB said it is planning early engagement with fixed rate borrowers.
The bank did not say how many borrowers were on high debt-to-income levels (six times or more) but its credit policies include a loan-to-income decline threshold of seven times and a DTI decline threshold of nine times.
ANZ’s $278 billion home loan portfolio has an average LVR of 70 per cent at origination and an average dynamic LVR of 44 per cent (with only 3.1 per cent above 90 per cent).
Sixty-eight per cent of the bank’s home loan customers are ahead with repayments and 33 per cent of them are ahead by two years or more. The bank has $41 billion of offset balances.
In the March half the loss rate was 1 basis point, which is lower than the previous two halves.
ANZ said 0.7 per cent of home loan accounts in negative equity and 49 per cent of those loans are ahead with their repayments.