RBA interest rates: Big banks, Westpac will cut home loan ...

The 0.66 percentage point gap can be explained by borrowers negotiating, RateCity suggested this week. So, after the 13th official rate rise on Tuesday, the average owner-occupier who has not negotiated with their bank for the best rate will be on an interest rate of around 7.11 per cent – but those who do engage, and request the best rate their bank can offer, could be on 6.55 per cent.

Mr King also said banks remain willing to apply COVID-like loan deferrals to borrowers who are genuinely struggling to repay their loans.

During its result presentation, he said Westpac had 13,000 customers on hardship arrangements, less than half a per cent of the total of 3 million mortgage customers. Three-quarters of them “are getting temporary reductions in repayments or a payment pause”, he said.

“What helps is time [as] they might have lost their job. But if you can get a [new] job and get hours, that is what is solving a lot of issues at the moment,” Mr King said.

“If customers are feeling tight, give us a call. There are options, and we can look at their individual circumstances.”

In a recent interview, Equifax’s international president Lisa Nelson said Australia’s bank hardship policies are more generous, and broadly available, compared to banks in the United States, Canada and most of Europe.

Banks who defer loan repayments have to carry higher levels of regulatory capital against them, reflecting a higher risk of the loan defaulting, but Australian banks are operating with excess levels of capital, evidenced by the $1.5 billion share buyback unveiled by Westpac on Monday. And putting loans into hardship mean banks don’t need to write them down, which is keeping official bad debt levels at very low levels.

National Australia Bank will report its full-year numbers on Thursday; its retail boss Rachel Slade said earlier this week that the vast majority of customers are taking higher interest rates in their stride.

The additional 25 basis point rate lift in the cash rate announced on Tuesday will add an extra $900 a year for the average borrower, with the cumulative impact of rate rises increasing repayments by around $14,500 a year since the hiking began, a 50 per cent lift in overall repayments for those who have not haggled for a better deal.

Westpac said on Monday the number of customers more than 30 days late on mortgage repayments had risen by 15 basis points over the second half, to 1.54 per cent of loans, but this remains below pre-COVID levels despite the sharp rise in borrowing rates. Just 0.86 per cent of loans are more than 90 days overdue.

“Lead indicators are showing signs of deterioration, but they remain relatively resilient,” said Jarden’s chief economist Carlos Cacho on Tuesday. “Given a sound employment backdrop, supportive house prices and a low share of negative equity, we are sanguine about near-term losses.”

Jarden further revised down its estimates for bad debt charges at Westpac in 2024, which were already below the market consensus, from 15 basis points to 13 basis points of loans, and upgraded its recommendation on Westpac from underweight to neutral.

UBS analyst John Storey said he had lifted near-term earnings forecasts on Westpac “driven by better-than-expected bad debts, as asset quality continues to surprise on the upside”. This offset higher forecasts for Westpac’s costs.

After high inflation forced the RBA to increase borrowing costs on Tuesday, RateCity said Australians should prepare for a further rate rise, that would take the cash rate to 4.60 per cent. For a borrower with $1 million of debt, this would lift overall repayments by $2570 a month, or $30,860 a year, since rates started rising.

Canstar said this week that the higher rates have reduced the number of home loan borrowers able to get ahead on repayments. A survey of 752 mortgagees in October found 38 per cent are making extra repayments, while 45 per cent said they had been but are no longer. The top reasons for shifting to minimum repayments were higher living expenses, higher interest rates, and borrower income being lower than it previously was, the survey found.