Key Points: 

  • The RBA estimates around 800,000 fixed rate home loans are due to expire in 2023, equating to $350 billion in credit set to roll from fixed to variable. 
  • In mid-2021, borrowers could lock in a 2-year fixed rate home loan below 2%.
  • Variable mortgage rates have jumped sharply as the RBA aggressively lifts the cash rate. Some fixed rate borrowers will see their interest rate more-than double when their fixed term ends.
  • The RBA is expected to raise the cash rate for a 10th consecutive month on Tuesday.
  • Morningstar's Zaia says bad debts are expected to rise, but the banks are well positioned and have only slightly lifted collective provisions.


Nathan Zaia
: I think it gets a lot of attention because we're talking about big numbers. So, for CBA (CBA), for example, it's almost $100 billion that will be maturing rolling over from fixed to variable in the next 12 months. So, that's 20% of their loan book. So, we're talking about big numbers.

But I think what is overlooked is, within those borrowers we don't necessarily know how many borrowed at capacity, what their income levels are, what their average LVRs are, how much equity they have, what other assets they have.

We've had rental increases. We've had wage increases. So, just because that buffer has been eroded doesn't mean everyone in that bucket is now going to be under extreme pressure.

Yes, there will be some that as much as they cut back probably did overextend and they'll be in trouble, but we think that will be a small percentage of borrowers.

Most recent bank results – banks lifted collective provisions only slightly. So, they have better data than we do on their customer base and their loan books, and they seem pretty comfortable today.

Some banks even made the comment that the customers that have matured to-date, they're not in arrears or performing any worse than the rest of their loan book as well. So, some comforting signs.

But yeah, we're expecting more. We go from a period where bad debts have been non-existent to go back to more longer-term averages. Yes, it will be pressure on serviceability, but we're coming from a really good starting position in terms of savings balances, people ahead on their loan repayments, equity buffers and now unemployment is low. So, we're still quite confident in the outlook.

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