Almost one million Australian homeowners are set to default on their mortgages in the coming months, an independent analyst warns.
Digital Finance Analytics principal Martin North explained that if the big four banks do go ahead and increase their standard variable rates by as little as 0.15 percentage points over the next few months, homeowners could default.
A number of Australian banks have already begun the process of raising their interest rates, ABC News reported.
Mr North told ABC News rate rises were almost a certainty, while Aussie Home Loans chief executive James Symond fears potential borrowers will be ‘locked out’ of obtaining a mortgage.
Lenders and financial institutions such as Macquarie Bank, AMP, Bank of Queensland, Suncorp, and ME Bank will be raising rates on their ‘occupier loan’ products
‘I’m almost certain they’ll be forced to lift those rates, it’s a question of timing, and of course the political reaction when it happens,’ Mr North said.
Lenders and financial institutions such as Macquarie Bank, AMP, Bank of Queensland, Suncorp, and ME Bank will be raising rates on their ‘occupier loan’ products.
This has left pundits waiting to see whether the big four banks – ANZ, Westpac, CBA and the NAB – will also move to raise their rates.
Mr North believes the rate rises will all be in place by September, unless some unforeseen and rapid movement in the global financial market changes the course.
However, Mr North cautioned against raising interest rates, which could see a huge negative impact on homeowners and lenders across Australia.
Financial pundits are now left waiting to see what the big four banks, ANZ, Westpac, CBA and the NAB will also move to raise their rates.
‘Today 975,000 households across Australia with owner-occupier mortgages are right on the edge, and there are around 50,000 who are already over the edge and are looking like they could default,’ he said.
For example, a homeowner in Sydney with a $750,000 mortgage would be required to pay an extra $60 per month with an interest rate rise of just 0.10 per cent.
Mr North said it was the borrower who was ‘up against it’ with very little wiggle room who would suffer the most, even with very small interest rate changes.
The ABC managed to draw clarifying comments from Commonwealth Bank chief economist Michael Blythe on some of the contributing factors.
‘All banks are facing the same issue – part of that funding pool that they draw on, be it domestically or overseas, we have seen some upwards pressures on interest rates in those areas,’ he said.
Meanwhile, Aussie Home Loans chief executive James Symond told The Sydney Morning Herald that a growing number of people would be ‘locked out’ of owning a home if banks continue to tighten credit access.
Aussie Home Loans chief executive James Symond (pictured) said a growing number of people would be ‘locked out’ of owning a home if banks continue to tighten credit access
Mr Symond played down the risks of interest rate rises on the market but did say banks’ continued scrutiny over lenders’ expenses and their tightening of lending access will have a negative impact.
‘I’m hoping everyone is looking at it very, very carefully, because I’m seeing a credit marketplace tightening a lot, a real lot. And if we saw it tighten any more, I think that you mightn’t get the desired outcomes you want,’ he said.
‘You might get, en masse, a whole bunch of people that just simply can no longer afford a home, full stop. The big banks are concerned.’
Mr Symond said banks were tightening their credit policies because of regulations, risk, the ongoing royal commission into banking and ‘the tone of the marketplace today’.
He also said the mortgage sector found itself in a ‘state of flux’ due to the royal commission, unknown factors around the commission-driven remuneration model and falling house prices in Sydney and Melbourne.
The real sign of credit changes will be demonstrated by how hard banks choose to put the brakes on their mortgage lending.