Borrowers brace for rate rises

Moody's has warned that rising interest rates and living costs could make it harder for some borrowers to meet mortgage repayments, as major banks begin passing on rate rises to customers.

New data from Moody's Investors Service forecast a moderate rise in mortgage delinquency rates - a failure to repay within an agreed due date – for the rest of 2022 amid rising inflation and higher interest rates.

The observations follow the Reserve Bank of Australia’s decision to lift the cash rate by 50 basis points to 0.85 per cent on Tuesday, the largest single increase in more than 20 years.

Though Moody's Vice President Alena Chen said some borrowers would be more affected than others.

“The risk of mortgage delinquencies will be highest for borrowers with high loan balances and where amounts are close to buyers' maximum borrowing capacities,” Ms Chen said.

“However, we expect delinquency rates will only increase moderately overall this year because interest rates, while rising, are still low.”

Westpac was the first bank to respond to Tuesday’s rate rise, followed by National Australia Bank, Commonwealth Bank and ANZ following up with changes to their respective lending rates.  

All four banks increased their variable home loan interest rates by 0.5 per cent per annum. 

NAB group executive personal banking Rachel Slade said the decision reflected a domestic and global environment, as well as changes to the official cash rate.

The bank’s increase means an owner-occupier paying principal and interest on a 30-year $400,000 mortgage would pay an additional $116 a month on repayments.

Ms Slade said a number of customers had contacted the bank following the RBA’s decision to first increase rates in May.

“There was a spike in the number of customers making lending support contact on the day after the May rate increase, and many customers have been accessing online tools to manage their home loans including through the NAB app,” Ms Slade said.