ASB chief executive Vittoria Shortt has noticed an uptick in homeowners fixing their mortgages for shorter durations. Photo / Alex Burton
ASB chief executive Vittoria Shortt has noticed an uptick in homeowners fixing their mortgages for shorter durations. Photo / Alex Burton
“Be prepared for any eventuality.”
This is a message ASB chief executive Vittoria Shortt wants to deliver to borrowers trying to pick where interest rates will go next.
“I think it’s dangerous to bank on rates staying the same, or definitely moving higher, or definitely moving lower,” Shortt told theHerald.
“It pays for business, for people to really think about different scenarios and how they would handle those different scenarios. I think that’s something we’ve learnt over the past five years.”
Shortt’s warning came as she noticed an uptick in people fixing their mortgages for shorter durations, suggesting they’re betting on interest rates falling in the near term.
Reserve Bank data shows that in December, fixing for a year was by far the most common route taken by both owner-occupiers and investors, while fixing for six months shot up in popularity (from a low base) from a year earlier.
Of the $5.3 billion of fixed mortgages New Zealand-registered banks issued to owners-occupiers and investors in December, 43 per cent went to borrowers who fixed for a year or less, while 65 per cent went to those who fixed for 18 months or less.
ASB chief executive Vittoria Shortt says 68 per cent of ASB’s mortgage customers have rolled on to interest rates above 6 per cent.
Should the Reserve Bank hike the official cash rate (OCR) two more times, as the most hawkish bank economists (from ANZ) predict, these borrowers could be caught short, forced to refix their mortgages at even higher interest rates.
“We have to accept this is still an uncertain environment,” Shortt said, noting there is a range of domestic and international factors - like geopolitical tensions - that affect bank funding costs, and therefore retail interest rates.
She said 68 per cent of ASB’s mortgage customers had rolled on to interest rates above 6 per cent, while 36 per cent were on rates above 7 per cent.
Shortt expected more than 90 per cent of the bank’s borrowers to be paying more than 6 per cent in a year’s time.
“People are making big sacrifices - it’s not easy,” she said.
However, she noted New Zealanders are proving to be “pretty resilient”.
ASB’s just-published half-year results show that 0.41 per cent of the bank’s home loan book was more than 90 days in arrears as at December 31.
While this was a larger portion than a year prior, arrears weren’t at a terribly concerning level.
“We think that the credit settings that we’ve had have been very helpful,” Shortt said.
She said ASB had identified around 370 stressed home loan customers, who needed more support.
She noted the bank was paying particular attention to the 17 per cent of borrowers whose monthly mortgage repayments had increased by more than $1000 when they refixed their loans at higher rates.
These customers were 2.6 times more likely to miss their repayments.
Looking at ASB’s financials for the half year to December 31, its statutory net profit after tax fell from a record high. It was down 11 per cent compared to the same period in 2022 to $749 million.
ASB’s net interest margin - a key measure of profitability - fell by 26 basis points to 2.21 per cent (a rate below the 30-year industry average of 2.34 per cent).
The bank said this partially reflected lower lending margins, mainly from home loan pricing competition, as well as lower deposit margins, due to savers switching to higher-yielding term deposits.
ASB’s home loan book hardly grew over the year, while the value of interest-bearing customer deposits rose by 9 per cent.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
