Home loan borrowers ready to absorb coming rise in interest rates

Property Prices

NAB chief executive Ross McEwan says higher interest rates are already here but customers who are ahead on payments will be able to absorb.

Forecasts of an official Reserve Bank interest rate rise have been brought forward recently, with the Commonwealth Bank tipping June this year and the NAB thinks when a rise does come, it will most likely be by 50 basis points.

“Our view is it will probably be the latter half of this year that the Reserve Bank will start moving,” Mr McEwan told the ABC.

“I think it’s probably going to be about 50 basis points up.”

Despite the wait for the RBA to lift official rates, fixed interest rates hit their trough last year and have been on the up since.

“Interest rates on fixed mortgages have already moved,” Mr McEwan said.

“Because for us to give somebody a fixed rate, we’re not just borrowing off depositors, we’re actually borrowing out of wholesale markets, and that money for us has actually increased in price.

“So that’s being passed on through fixed rates for customers.”

With COVID lockdowns and the reduction in travel expenses, many borrowers have been able to build their savings and get ahead on mortgage repayments over the last couple of years.

“Most customers have a buffer, in that they’ve been overpaying on their mortgage, i.e. paying more against their principal than then they would have normally, because as interest rates have dropped, we’ve given them the option to actually just keep paying the same amount that they were before,” Mr McEwan told the ABC.

“Our own book shows that at least 70 per cent of our customers are well in advance of their payments.

“And when I say well in advance, we’ve got about an average of four years of advance payment across the average of our mortgage book.”

The NAB chief said those that have only recently bought property during this COVID property boom period would be unlikely to have had time to build a buffer but should be able to manage the coming rise in rates.

“When we give them a mortgage, we don’t take the interest rate that they’re actually being paid as the rate we think that they can afford. We add a buffer on top of that, which is an additional 3 per cent,” he said.

Strong employment figures and an expected slowdown in property price growth are two other factors that mean borrowers should feel confident they can ride out a rate rise later this year.


News & Resources