Westpac: End of fixed rate loans means higher interest rates will cause ‘inevitable’ pain for mortgage holders

The days of Australian borrowers able to largely absorb the impacts of repeated interest rate hikes will soon be over, Australia’s second-largest bank has predicted.

Westpac Managing Director Peter King says it is “inevitable” that the impact of higher rates will be felt, including when borrowers’ low fixed rates shift to higher variable rates.

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“We’re not seeing an increase in hardship or stressed assets yet,” King said Monday, after announcing that the company had posted a $5.7 billion annual profit.

“Many customers have accumulated savings over the past two years, and 68% are staying ahead of their mortgage payments.

“However, it is inevitable that the impact of higher rates will be felt, including when borrowers’ low fixed rate loans are rolled over.

Westpac says many of its customers stay ahead of their mortgage payments. File picture. Credit: AAP

“It will be difficult for people, and it’s important to recognize the challenges ahead as customers navigate a tougher environment.”

In September, only 1.07% of Westpac’s assets were considered “distressed”, compared to 1.1% in March and 1.91% in September 2020.

Only 0.51% of borrowers were more than 90 days behind on their payments, compared to 0.56% in March and 0.8% in September 2020.

Cooling saving

King said Australia’s economy remained robust, but the heat would come out of it as rates rose.

“House prices have fallen in recent months and this will continue into 2023. Credit growth is expected to slow. GDP growth will slow and unemployment will rise,” he said.

“These will be necessary results if we are to reduce inflation.”

The bank released a better-than-expected result on Monday, with net profit of $5.7 billion for the 12 months to September 30, up 4% from a year earlier.

Revenue fell 2% to $19.9 billion and cash profit fell 1% to $5.3 billion, beating consensus estimates of 3.7%, according to banking analyst E&P Financials, Azib Khan.

As of 1:23 p.m. AEDT, Westpac shares were down 4.2% at $23.12, the worst performance of any of the Big Four banks, even ex-ANZ dividend.

Westpac CEO Peter King outlined his expectations for the Australian economy. File picture. Credit: AAP

King said Westpac’s mortgage business grew more slowly than its peers during the year, but gained momentum in the second half.

He was pleased with the deployment of the Westpac app, which offers enhanced self-service capabilities and sub-two-second connection speed.

Westpac said it was continuing its digital migration, with the number of Australian branches down 14% over the past two years to 732, while the number of Westpac ATMs fell 16% to 1,071 in during the same period.

Meanwhile, Westpac’s number of digitally active customers grew 5% to 5.48 million, and its digital transactions grew 13% to 356 million.

Westpac will pay a final dividend of 64 cents per share, bringing the full-year payout to $1.25.

– With Warren Barnsley

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