Higher Default Levels Putting Pressure On Domestic Housing Market

The latest figures point out that the numbers of mortgage customers defaulting on their loans is running a pace much faster than it was even at the worse part of the global financial crisis. The link between this trend and the rising costs of living should not be hard to miss. More households are straining beneath the expense, some to a breaking point.

In a report released a few days ago by Westpac, Australias second-largest home lender, showed that increases in the mortgage delinquency rates above what they reached in late 2008 as the economic crisis spread from one end of the globe to another.

Westpacs chief executive Gail Kelly also noted the banks profits for the first half in the report, mentioning new records that had been achieved. She said that the number of defaults was likely to rise even higher as Australians try to balance the mortgage repayments with bills and other expenses.

Of Westpacs $275 billion home loan book, the report noted that around 1.5% of the total consisted of those current customers that were more than thirty days behind on their mortgage repayments at the end of March.

Other data showed that the total proportion of Westpacs home loan clients with account more than 90 days late had risen to 0.6%. This amount is nearly double the rate of delinquent accounts in this category from the previous year. It was also a number much higher than the crest of the financial crisis.

The number of defaults is gaining momentum across all of the Australian states. Still, Queensland has been affected the most by this trend. The number of delinquencies in this state is by far the worst. This situation was exacerbated by the summertime floods that wreaked havoc in this state.

The surge in defaults has come despite better conditions in the Australian employment market. This has been cited as a proof that borrowers are struggling to pay their mortgage due to added financial strains. One UBS analyst has another perspective. John Mott has raised questions about whether the increase was caused by the first home buyers who used government grants to get home financing.

Gail Kelly suggested that the delinquency surge was entirely expected based on the Westpac analysis. There are indicators that the late repayments will increase more and will continue for the time being. However, the increase does mean that there will be more clients who need assistance making up or managing their repayments. At the same time, Kelly did not seem to think this trend would cost the lenders in terms of actual losses due to defaults.

During the six months prior to March 2011, Westpac posted profits added up to $3.17 billion. This equaled a 7% increase when compared to the same period the previous year. These totals may due in part to the major decline in the fees that must be paid for high-risk or even toxic debt.

The banks net profits included a 38% increase so the total was at $3.96 billion. What should also be noted is that this progress was only made possible by changes in the Australian tax code that revised some restrictions. Another key factor in Westpacs improvements has to do with its decision to buy St. George Bank back in 2008.

Still, with such positive turns, there is speculation among some investors about whether the levels can remain sustainable. Notably, the recent 2.5% drop in the value of Westpac share prices has some wondering whether the increase profit was simply due to the manipulation of the charges on bad or questionable debt.