Interest rates are already rising but borrowers can cope, says NAB boss Ross McEwan

The National Australia Bank boss has warned that variable mortgage rates will “likely” rise later this year, but says his customers are mostly well placed to cope.

The Commonwealth Bank’s economics team recently postponed its forecast for the first official interest rate hike since November 2010 to June this year.

However, speaking to ABC’s Close of Business programme, NAB chief executive Ross McEwan said his impression was that the Reserve Bank was in no rush.

“Our point of view is [it will] Probably [be] in the second half of this year that the Reserve Bank will start to move,” he said.

“I think it’s probably going to go up about 50 basis points.”

The NAB boss says the cheap fixed mortgage rates seen a year ago have all disappeared as funding costs have risen.(ABC News: John Gunn)

Although he added that the cheapest interest rates that were on the market a year ago, on fixed loans, had already disappeared.

“Interest rates on fixed rate mortgages have already moved,” he said.

“Because for us to give someone a fixed rate, we’re not just borrowing from depositors, we’re actually borrowing from the wholesale markets, and that money for us has actually gone up in price.

“So that trickles down through fixed rates to customers.”

“Most customers have a stamp”

Space to play or pause, M to mute, left and right arrows to search, up and down arrows for volume.
Play the video.  Duration: 4 minutes 20 seconds

The NAB boss expects interest rates to rise this year.(Rachel Pupazzoni)

Despite the prospect of higher rates, Mr McEwan was confident that the vast majority of NAB customers would cope with the hike in repayments.

“Most customers have a buffer, in that they have overpaid on their mortgage, that is, they have paid more on their principal than they normally would have, because as interest rates went down, we gave them the option of continuing to pay the same amount as before,” he said.

“And when I say well in advance, we have about four years of prepayment on average on our average mortgage portfolio.”

While recent homebuyers during the current housing boom are highly unlikely to have built up a substantial reserve in their repayments, McEwan was nonetheless confident they would manage rising interest rates without financial hardship.

“When we give them a mortgage, we don’t consider the interest rate they actually receive as the rate we think they can afford. We add a buffer on top of that, which is 3% additional,” he said.

Economy, housing still strong

Mr McEwan said the current economic environment was also conducive to maintaining their loan repayments.

“The biggest factor in paying off a mortgage is having a job. And right now we’re seeing levels of unemployment in Australia at the best levels in decades,” he said.

This week’s January labor force figures from the ABS showed unemployment holding steady at 4.2%, even during the peak of the East Coast Omicron wave.

The NAB boss was also more optimistic about the outlook for the housing market than some of his big banking rivals, with Westpac recently forecasting house prices to fall 14% from a peak later this year to a trough in 2024.

“We can’t see another 20% odd [rise] this year,” McEwan said.

“You’re actually running into customers who can’t afford to pay the mortgages on those. So it starts to put a ceiling in place.

However, Mr McEwan added that if any of NAB’s mortgage customers begin to feel financial pressure, for whatever reason, they should contact the bank as soon as possible.

“The first thing if they are […] start to feel they might be in trouble, speak to their banker,” he advised.

“It’s really important. We can do things early with them and help them as long as we get the notification. But if they delay too long, it leaves us with limited options.”

Comments are closed.