Falling house prices. Stagnant wages. Hefty mortgage burdens.
It’s a bad combination. And one that’s increasingly concerning to ANZ boss Shayne Elliott. And while he says it’s not his job to predict what the RBA will do next, Elliot believes a cut is the best way to assist the growing number of customers that can’t repay their mortgages.
Rate of late home loan repayments has risen
The amount of people that are struggling to pay back their home loans has risen, ANZ has reported from their first half-year financials. From this, it has been difficult for the banker to get a clear picture of the future ahead, amid such worrying conditions.
According to AAP, the reports reveal that 5% of ANZ’s home loans are in negative equity as from 31 March. The UBS has reported a rise in mortgages overdue by 30 days — by 2.25%.
This is a massive increase from the 1.8% rate reported only six months earlier. A worrying increase. This is almost 600 families that are left unable to keep up with their payments.
The rate of 90-day overdue payments is also higher.
And if you’ve listened to anything we’ve been reporting for the last twelve months, you’d probably expect that the news isn’t going to get any better.
Shayne Elliot definitely thinks so. And he believes wage stagnation will be the killer.
Low wages to blame, says ANZ boss
Observing the damage, ANZ believes that the continuing decline in real estate and low wage growth is only putting more pressure on borrowers. For those who have finally obtained their dream home, it’s now not worth nearly as much as the loan they owe their lenders.
‘Low inflation suggests maybe a rate cut would be a good thing…It would put a bit of money back into people’s pockets,’ Mr Elliot said when announcing the first-half results on Wednesday.
‘Those people who are behind on their mortgage could make more repayments.’
As the big four begin to worry about how the crash may affect them, perhaps this will provide another bolt of inspiration for the RBA to deliver on the promise over higher wages that were said to be coming soon.
But with no change on the horizon, economic activity is slowing to a volatile pace.
‘When a lot of people take out a loan, they generally make assumptions about their future wage growth,’ Elliot said.
‘But for many people wage growth isn’t happening…they’re not getting what they thought they would be. I don’t see that changing any time soon.’
Grim future for real estate market
And while the falling in prices may influence some to downsize until the coast begins to clear, it seems even that strategy is becoming impossible. This has led to an additional increase in short-term bad debts, Elliot says.
‘A lot of people get behind for a month or two then sort themselves out.
‘They sort their expenses, cut back … they sell their house and go somewhere smaller. That today is taking a lot longer.’
Following the weak inflation figures that have been released despite a rise in full-time employment, there have been urgent calls for the central bank to address their cash rate during their meeting on 7 May.
The futures market had priced in at least one rate cut before the end of this year. Many economists are predicting two 0.25% point cuts.
With such worrying prospects, we’ll be keeping a close eye on the activity around the 7 May meeting — reporting the latest news that will affect you, your family and your home.
Free report: Phil Anderson reveals a virtually unknown, monarchy inspired income stream that he believes could financially benefit every tax paying Aussie citizen for the next 100 years.