New Wave Of Mortgage Stress

Those with home mortgages are defaulting on their repayments much faster given the current global financial crisis. Tight household budgets and elevated cost of living expenses are causing great stress to customers.


Westpac records record gains

Australias second largest bank, Westpac, disclosed never before reached profit levels and also unveiled that non-payment of outstanding mortgage rates have reached levels similar to those Australia had in 2008. A six month cash profit statement for Westpac showed an increase of 3.17 billon, a 7% increase from just one year ago. The bank also posted a net profit of $3.96 billon, which was a 38% boost from one year ago which the bank directly relates to the acquirement of St. George.

Westpac Chief, Gail Kelly, despite the low base, expects profits to continue rising even though homeowners continue to have difficulties paying higher cost of living expenses.


The source of some loss for Westpac

According to Westpacs home loan books, homeowners made up 1.5 percent of the banks loans that were 30 days delinquent on payments at the end of March. Ms. Kelly indicated that the rise in mortgage delinquencies was entirely within our expectations.

She stated that even though homeowners were probably going to need assistance in the near future with repayment options, that Westpac did not constitute this to mean a loss for the bank.

The rate of those homeowners who are 90 days or more delinquent rose to 0.6 percent which shows a significant increase that is almost double the rate from the previous year.

Queensland has been hit the hardest with mortgage delinquencies but every state is feeling the crunch of the defaults. This is indicating a new wave of mortgage stress for homeowners.

The rising level of mortgage defaults seems next to impossible to believe despite Australias low rate of unemployment. Jonathon Mott, a USB analyst, speculates that the deficit might have been caused by the first-time home buyers who were given grants to assist in purchasing a home.


Australia and New Zealand Banking Group shows similar results

The ANZ, Australias third largest bank, also reported a 38% rise in profits for the first half but also claims that lender growth will continue to slow as the interest rates soar.

Australias quickly developing relations with the Asian countries, including China, is forcing the central banks hand. The expansion into the Asian countries kept in line with results that were posted. The bad debt charges were a little more than what was expected.

The central bank has had no choice but to increase interest rates to unprecedented levels in the developed world. Consumer confidence is strained resulting in lack of spending passed on to retailers. This, in turn, is hurtful to Australian exporters who convert currency back into weaker Australian dollars.

ANZs Chief Executive, Mike Smith, states that if the central bank continues to increase interest rates that it threatens to stall the economy.

If consumers cannot invest in businesses due to the higher cost of living expenses, businesses cannot produce profits.

Australias Reserve Bank did not change the cash rate, currently valued at 4.75%, but it anticipated that this rate will have to be altered soon.

Mr. Smith went on to say that I think lending growth is going to be much slower which will make it much more difficult for Australias big banks to grow their profit margins. It is not expected that lending growth will recover to pre-crisis levels any time soon.