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Speaking to the House of Representatives standing committee on economics for its review of Australia’s four major banks on Thursday (13 July), Westpac Group chief CEO Peter King encouraged more borrowers to come forward to ensure they are securing the best deal.
Mr King highlighted the significant role played by brokers, revealing that almost 50 per cent of Westpac’s mortgage book is handled through the third-party channel.
Where a broker was not involved, he told “people to engage us” and make informed decisions, such as choosing between fixed versus variable.
“We could put an annual nudge in, but I don’t think it would achieve what we think it will,” Mr King said.
In addition, he acknowledged the growing number of customers using digital platforms to compare rates.
He also noted that already $40 billion worth of fixed-rate loans have transitioned to variable rates in the past six months without significant signs of stress.
However, with interest rates expected to peak around 4.6 per cent, Westpac is strengthening its support teams in anticipation of potential challenges.
One segment of borrowers that Westpac is “closely monitoring” is those with a high debt-to-income (DTI) ratio, given borrowers who have borrowed more relative to their income are expected to face difficulties as interest rates rise.
Generally speaking, a DTI higher than six times a borrower’s income (6 DTI) is considered a higher risk that they will fall under financial stress if interest rates rise.
As such, given many people borrowed at very low interest rates during the height of the pandemic, the 400-bp increase in interest rate rises is expected to throw more borrowers into arrears.
Despite growing concerns over mortgage stress, Mr King noted that the majority of borrowers were in good financial shape.
However, Westpac was ready to assist struggling borrowers by exploring various options such as repayment holidays, temporary interest-only periods, or changes tailored to their specific needs.
He explained, for some borrowers, it could be a change for a time period, but for others who have over-leveraged “we’ll help them through the process”.
“The first thing we do is we make sure they’re ready for the change and we contact them early,” Mr King said.
Mr King noted the increased competition and refinancing in the market indicating borrowers are being active.
“We’ve got so much churn in the market ... people are taking action, it’s happening, [but] is it happening fast enough?” he said.
“A lot of the market at the moment is refinance because there’s not a lot of new growth in the market at the moment.
“And at this stage, the majority of customers contacting us are wanting to understand the options available to them.”