Anna Bligh speaking on ABC’s Radio National Drive about financial hardship   

Andy Park   

Many homeowners and indeed renters would have breathed a sigh of relief yesterday when the RBA decided to keep the cash rate on hold but with the RBA Governor saying it’s too soon to declare victory, the question is not if but when there will be another interest rate hike. Perhaps certainly before the end of the year according to major economists. This week marks two years since the RBA began tightening the purse strings, heaping, seemingly unending mortgage pain on households across the country. And as that road to recovery stretches out even further this year, you might be wondering, when is enough pain and is this enough? Anna Bligh is the Chief Executive of the Australian Banking Association. Welcome, Anna.  

Andy Park   

According to ANZ, there was a significant increase in the number of loans now 60 to 89 days behind in repayments up to 63% in the 12 months to March. Are you seeing the hardship that many Australians are feeling right now and that are playing out in the market? 

Anna Bligh   

Good afternoon.  

Anna Bligh   

We’re certainly seeing some customers in hardship, but what I would say is that customers across the board are actually proving much more resilient than banks had anticipated. This time last year, banks would have said if there were more interest rate rises, that they would have expected to see a lot more customers in default and on hardship arrangements. We still see many, I think 70% of customers ahead on their mortgage. But that doesn’t mean that they’re not doing it very tough. For most Australians with a mortgage, their mortgage is the first thing they pay. And in droves, they’re still doing that. But we know that that is coming for too many Australians, at a real sacrifice. They’re giving up on a whole lot of other things, including some things that we would all hope that they’re not giving up on, like buying medicines and going to doctor’s appointments. So, we do know that while we are seeing a lift, mortgage arrears are at levels of about 1.3%, that’s actually lower than they were in 2019, before COVID, where it was 1.5% and when interest rates were very low. So, it’s still terrible for those people who are in that position, but overall, we’re seeing customers being very resilient. But I suspect for many of them, it’s coming at a very high, pain level in the rest of their lives.  

Andy Park   

I remember interviewing you throughout the pandemic, and when we entered into this inflationary period and I think it bears repeating about what you should do if you are concerned about mortgage stress and if your past due loans are growing. What is the first thing you should be doing when it comes to contacting your bank? What’s the first thing you should be asking for? 

Anna Bligh   

Absolutely and anyone who’s even just started worrying, you may not have started missing a payment yet but you’re starting to feel worried what might happen to you, the earlier that you can ring your bank the better they will be able to help you and put you into an arrangement that will get you through this period. Banks have actually got quite a lot of tools in the toolkit and they have very experienced teams. There’s about 20,000 people in Australia at the moment on one of these arrangements and that tells people you’re not alone. You don’t need to feel embarrassed, there are plenty of other people who have already done this and they’re getting relief. Very practical things like restructuring the length of your loan so it lowers your payments, or moving a customer to an interest only arrangement for a period of time, or depending on circumstances, in some cases deferring payments altogether. So, anyone out there who’s finding it just too tough, and getting very worried that they might be at risk of missing a payment, or maybe they’ve missed one or two. You know, the worst thing that people can do is start doing things like using the credit card to make the mortgage payment. You know, once you get into a debt spiral like that, it gets harder and harder for banks to help but there is a way through this. Remember, banks issue a mortgage for 20 or 30 years and if you’ve got a six-month blip, or a 12-month blip where you need a bit of help, the bank wants to see you pay off the mortgage. You want to pay off your mortgage and own your home. Your interests are entirely aligned and these are not unusual arrangements. It happens year in and year out even in the best of times. People lose their jobs, marriages break up. Banks do this day in day out.  

Andy Park   

I want to move on and talk about Westpac. They disclosed in its half year results on Monday that a lack of mortgage competition has formed an environment good for bank profitability but bad for customers seeking new loans or refinancing old ones is the sector being sensitive enough to this idea that a good time for the banks means a bad time for their customers. 

Anna Bligh   

Well, what was actually seen in all of the half year results that banks have issued in the last week, because it’s half year result reporting time, is that all of them have seen a reduction of profit between the first half of this year and the second half. What we are seeing is actually the reverse, it’s actually that competition is seeing banks writing loans, in many cases, below the cost of those loans just to get a market share. So, you know, in fact, some banks are retreating a little bit from some of the offers they were making six months ago like Cashback Offers, because it’s getting to the point, as I said, where to do so would mean they’d be lending below the cost. But there is still a lot of competition out there. 630,000 Australians last year, biggest ever on record, refinanced their loans, either with their own bank or a different bank to get a better rate. And that’s the other thing that you can do.  

Andy Park   

If you just joined me, it’s 14 minutes past 4. The Australian Banking Association’s Anna Bligh is with me on Drive. As we potentially enter more rate decisions before Christmas that go upwards and what sorts of pressures that might put on people. I know, through receiving a lot of feedback on the text line here, that the burden of HECS and HECS debt really places young people, particularly those looking to enter the housing market, in an invidious position. How do banks currently factor in HECS debt, when someone’s looking to take out a home loan, because lots of people have said they’ve been denied home loans based off their HECS debt? 

Anna Bligh   

Well, firstly, there’s sort of two different categories of people with a HECS debt. There are people who have to start paying HECS once their salary gets to a certain level. So, you start paying a HECS debt once you’ve hit a salary of $51,000. Now, that’s pretty low. For many people they’re already paying it, but if you are not paying it, and probably most people earning under $50,000 are not applying for a home loan on their own. However, they could be a part of a married couple, or someone who has a has a child or is working part time earning a very large salary. It is important that it gets counted, and that HECS does not play a role in those decisions. For most people, they’re not applying for a loan until they are well and truly over that $51, their HECS is taken out of your salary like taxes, before you get your salary in your hand. Banks will assess your ability to service the loan that you are seeking on the basis of the salary that you get in your hand. So yes, it is the case that if you are paying off a HECS debt, it reduces your net salary or your net income, and it is then very likely that you will be approved for a lower loan than someone on the same income as you who doesn’t have a HECS debt because their ability to service the loan will be better. Banks have to walk a very fine line on this. Banks of course, want new customers, they want young people to be getting into the housing market and taking out a mortgage, that’s their core business. So, they’re walking a fine line between giving young people every chance to get into the market, and not burdening them with a debt that they can’t afford. If you’ve still got a big HECS debt you’ve got a long time to pay off, that is very likely to reduce the amount that you can borrow because otherwise banks would be acting irresponsibly, and setting you up potentially for very serious financial difficulty if they give you a loan that on any reasonable calculation, you actually can’t afford.  

Andy Park   

We’ll have to leave it there. Australian banking Association’s CEO Anna Bligh, good to talk to you this afternoon. Thanks, Andy. 

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