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Australia's largest banks, Commonwealth Bank of Australia (CBA) and Westpac have reported that the strong labour market is helping to keep late home loan repayments in check despite rising interest rates. This update suggests that the country's A$2 trillion mortgage market may avoid a downturn, easing concerns raised when the central bank started raising rates in May last year. However, both banks cautioned that the economy could face pressure from living costs in the coming year.
During parliamentary hearings, CEOs of Australia's major banks, including National Australia Bank (NAB) and ANZ Group, reported similar observations regarding the impact of rate increases on loan repayments. Despite concerns about the so-called "mortgage cliff" as fixed-rate mortgages transitioned into higher variable rates, all four banks reported minimal impact on repayments due to the country's low unemployment rate of 3.5%.
The CEOs acknowledged the need to prepare for potential financial stress in the future but expressed surprise at the current resilience of borrowers. Westpac CEO Peter King noted the absence of significant stress among customers despite transitioning A$40 billion of mortgages from fixed to variable rates. Commonwealth Bank of Australia (CBA) CEO Matt Comyn highlighted the possibility of unemployment remaining low, suggesting that the bank's forecast of unemployment above 4% by the end of 2023 might be too pessimistic. Overall, the banks indicated that, while challenges may lie ahead, the majority of borrowers were currently in a stable financial position.
Rising costs of groceries, power, fuel, and mortgages are expected to place additional strain on household finances in Australia. Commonwealth Bank of Australia (CBA) research reveals that younger borrowers and renters, who have already faced significant rent hikes, are the demographic cutting back the most on discretionary spending. These findings highlight the challenges faced by households in managing their expenses amidst increasing living costs.
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