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Speaking at the Bloomberg Summit in Sydney yesterday, CBA chief financial officer David Craig said customers are well ahead in their mortgage repayments, prompted by low rates, which has put home owning in Australia in “pretty good shape”.
CBA became the second of the big four banks to raise its variable home loan rates on 22 October. The bank lifted variable rates by 15 basis points for investors and owner-occupiers. The new higher rates became effective today.
“We are still at record-low interest rates,” Mr Craig said. “So even with the recent small changes that have happened in both investor and residential interest rates are still lower than they were in January this year, which in turn are lower they have ever been,” he said. “Interest rates are not a major factor.”
Mr Craig highlighted that the Australian housing market has had an imbalance of supply and demand “for many years”, where infrastructure has been slow, leading to underdevelopment of new housing supply.
“There has been price escalation,” he said, adding that “it is inevitable that that price escalation should at some stage flatten out and possible even ease”.
“There are not many people who have actually bought or sold at these very high prices. The majority of our customers have been in houses they bought at a substantially lower price. Because they have been conservative, 80 per cent of our customers have paid off, to some degree, in advance.
“What has happened is that as interest rates have come down, they’ve left their repayments at the same level and so they have been paying off principle.
“So 80 per cent of our customers have paid off to some degree in advance and they are averagely something like 27 payments in advance, so it is an enormous prepayment that has happened in the economy, which puts homeowning in Australia on the whole in a pretty good shape.
“It is inevitable that house prices will flatten or even come down a little bit but it will take a lot to cause a downturn.”
Mr Craig said that if unemployment hit 10 per cent it could be a warning sign of a property market downturn. However, he added that even if this were the case, mortgage holders would have a buffer in place.