No cliff: NAB’s riskiest mortgage borrowers are hanging in there

afr.com:

First-time home buyers who borrowed in the interest rate trough and bought a house at the previous price peak are rolling on to new variable interest rates that are higher than the buffers applied by banks when customers took out the loan.

But National Australia Bank says this riskiest cohort of customers who are breaching their “serviceability buffers” are showing no more signs of mortgage stress than the rest of its home loan book, adding weight to the “mortgage cliff” being overblown.

NAB CEO Ross McEwan: “I am not too sure we will expect anything different from this cohort.” Elke Meitzel

After the Reserve Bank, in response to the pandemic, chopped the cash rate to a record low of 0.1 per cent in late 2020, a large group of borrowers were assessed by banks, under standard serviceability tests, at their ability to repay a mortgage with an interest rate of 5.75 per cent. But as rates were jacked up 13 times since last May, bankers have been anxiously monitoring this cohort, who now face mortgage rates of around 7 per cent after the latest cash rate rise this week.

“As they are rolling off, they would have gone through the buffers we tested them against some time ago,” NAB CEO Ross McEwan said on Thursday.

“There was a group within that group with an income just above the buffer, so they didn’t have much left in them. We have been testing that group, and they have been performing the same as any other group taking out a first mortgage over a period of time.”

At NAB’s full-year results briefing on Thursday, its new chief financial officer Nathan Goonan (who has replaced Gary Lennon), said the bank had a laser-like focus on higher-risk loans originated between August 2019 and July 2022, totalling $145 billion, or 43 per