Westpac chief says Australian mortgages are cushioned for hikes

[SYDNEY] Westpac Banking chief executive Peter King said Australian households can absorb rising interest rates because banks have built in buffers that account for a higher peak in borrowing costs than is currently expected.

"Certainly for a lot of borrowers, they haven't experienced a rate rise but when we were assessing loans, we had a buffer," King, the head of Australia's third-largest bank, said at an Australian Banking Association conference in Sydney on Friday (Mar 11).

"What's lost in the debate sometimes is that we weren't assessing at the rate the customer was paying, we were assuming a much higher rate."

Westpac's leadership is more focused on where the Reserve Bank of Australia's policy regime ultimately tops out, rather than when it may initially lift off, he said. The firm's projections are that the central bank will cap any rate rises at 1.75 per cent, versus a market consensus of more than 2 per cent, he said.

As Australians grapple with increases in mortgage payments, years of ultra-low rates have helped many pay down home loans faster, rather than stretch their budgets by borrowing more, he said.

"What that means is they may have had extra income to do other things because rates were so low, but a lot of them used the cash to get ahead," King said.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Its larger peer Commonwealth Bank of Australia has forecast the first interest-rate increase to come in June.

Goldman Sachs Group, which this week brought forward expectations for an initial hike to August and then another in September, expects the tightening cycle to end after the cash rate reaches 2.5 per cent. BLOOMBERG