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Banks and Home Loan Stress

Many Australians are suffering from the cost of living pressures and the high interest rates putting them in danger of possible home loan difficulties.  Australians' pocket books are feeling a little lighter due to the increasing petrol and utility prices.  Couple that with the natural disaster of the floods and the increase in interest rates and it is a struggle for Australians to keep up with their bills.  Although the floods have contributed to financial distress, the evidence of this started before the floods.


During the time frame from October 2009 to November 2010, the Reserve Bank raised rates by 25 basis points seven times.  This has put a strain on households who are already dealing with increasing costs for household essentials.

Lending growth is probably going to decrease in the near future even though the Australia and New Zealand Bank ("ANZ") saw a 38% hike in profits.  Home loans were in arrears in the amount of 41%, which constituted a $5.8 billion of loans that were 30 days delinquent.  The bank reported also listed that $2 billion in loans that were 90 days overdue which was an increase of 26 percent.  Domestic mortgages were the basic cause of these losses for the bank.
The looming interest rate increases by Australia's central bank cause concern for the economy.  The economy currently seems to be stuck on a plateau.  Businesses have become more conservative, chosing not to reinvest in Australia's economy and deciding to save any reserves that they have.  With the flat economy, we are also seeing that consumers are spending as much.  They are chosing to stay away from large purchases and saving  funds or having to spend extra cash on the higher utility rates that we are currently facing.

With lending growth for homeowners slowing down, the Australian banks will see more difficulties with profit growth.

The banks realize that the mortgage arrearages stem from the higher interest rates and the rising utility costs.  The high levels of arrearages are ones that have not been seen in Australia for qutie some time.  The banks have expressed concerns over the arrearage but seem to think this conforms with the state  of the economy.  

ANZ currently has a $165 billion mortgage book.  Bank officials feel that this amount is realistic, giving the current economic condition with regard to the higher interest rates and hope that home owners can manage to keep the pressure of household expenses to a minimum.

There is concern regarding the national housing market but some believe that the bubble is non-existent at the moment because the declines in the capital cities seem to be in line with the current market.

Westpac Bank showed a more significant impact with 35 percent of mortgage payments that were overdue by 90 days.  That estimates a 1.46 billion deficit in payments for Westpac since last September.

Anticipation for the crumbling of household credit is very prevalent.  The constraints on households with the increasing utility rates and rising interests rates will most likely created a decrease in the price of homes for sale.  Homeowners offering their homes for sale will probably not be offered as much as they anticipated therefore creating a buyers market.  The buyers market, although may not increase greatly, due to the banks not offering home loans as readily and the rising interest rates.  The big banks will witness the effect of this trend in regards to profit margins.


Author: Howard Pinkston
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