Westpac’s Gail Kelly attempts to calm mortgage fears, but experts warn pressure rising

Westpac chief executive Gail Kelly has gone out of her way to reassure the market the recent rise in mortgage arrears is not out of the ordinary and the bank is not concerned that more people are unable to make their repayments.

However, while property experts say they are not concerned with the current rate of arrears, they say they could keep rising if interest rates are increased and wages remain flat.

The comments come just days after Fitch released a report showing delinquencies are at a record high and could increase further.

Speaking with the Australian Financial Review, Kelly said although mortgage arrears have increased the fundamentals of the economy will keep the housing market intact.

“It’s really a softening rather than any underlying concerns so I remain very confident about the Australian housing situation…I think delinquencies will pick up but they are off a low base.”

Kelly also said she hoped the Reserve Bank would delay in increasing interest rates, saying “two in a row would be a problem”.

The major banks reported lifts in 30- and 90-day arrears in their first-half results, while ratings and research agencies Fitch and JP Morgan have recorded increased delinquencies as well – the latter believes delinquencies are at their highest since the mid-1990s.

Some analysts believe this is due to the rise in first-home owners entering the market during the financial crisis thanks to federal grants. But Kelly dismisses that notion.

“That first-home owner segment continues to perform better than the average of the portfolio,” she said.

“The first home owner is often in an improving scenario…they’re in a rising income pattern in their career, and they’re often married and we don’t factor in the full extent of both incomes.”

James Zanesi, associate director of Fitch Australia, says it’s hard to say if there is a specific point where analysts become worried about delinquencies.

However, he does say the country is on the brink of seeing more occur.

“We are up from a year ago. And I would say that if the 90+ day arrears double, then we’d start to be a bit worried. Especially if this happens with increased unemployment and interest rates.”

“We are not concerned at the moment, but we are continuing to improve our methodology and applying changes to how we record data.”

David Airey, president of the Real Estate Institute of Australia, says it’s unusual that banks have been addressing the issue of delinquencies as publically as they have.

“Banks never used to talk about these sorts of things, you never got any information out of them. But since it’s a market-sensitive issue they have to disclose it.”

Airey agrees the current rate of delinquencies hasn’t reached a point where people should start to panic, but flags a number of threats to the housing market that could eventuate in the next year or two – such as interest rate rises.

“This position can worsen. Although it’s a part of the housing process, it’s not one that any banker would welcome. It’s expensive for banks to deal with arrears.

“Westpac and other banks will be significantly affected by this – we know they’ll make similar statements in the next few days.”