50,000 Westpac NZ home loan customers facing big rate rise in next six months

Westpac New Zealand chief executive Catherine McGrath. Photo / Mark Tantrum

Around 50,000 Westpac New Zealand home loan customers are set to come off a fixed term rate of less than 4 per cent and move onto a higher rate in the next six months but its chief executive is confident the bank has plans in place to support them.

Chief executive Catherine McGrath told the Herald it had changed its outreach approach for customers rolling off a fixed rate.

“We are getting in touch with them earlier so that’s at 75 days before that interest rate is likely to go up. We also let them rate lock from 60 days and the reason we are doing all of that a bit earlier is to help customers.

“We are working with customers to help them think through what they can do to make sure they are resilient as their borrowing costs go up.”

On top of that it will zero in on around 1000 customers a month which had particularly large increases, she said.

“We will be contacting them in person and giving them a call to see what we can do again to make sure we can help.”

Mortgage rates have risen sharply off the back of the big rise in the official cash rate which has gone from 0.25 per cent to 3.5 per cent. Home loans hit a low of 2.25 per cent during 2020 but have risen steeply since 2021 and are now around 6 per cent.

McGrath said it had been adding 2.5 percentage points to advertised rates to test borrowers on affordability.

“When we have been assessing people for their mortgage borrowing we have been adding a 2.5 per cent interest rate to the rate they are borrowing at to make sure we are comfortable that in a rising interest rate environment that they can manage the level of borrowing they have got.

“For the vast majority of our customers none of them so far have stepped to a rate outside that level that we have been stressing them at. That’s good and that means we are not seeing at the moment any evidence of stress in the book.”

But she said the bank was “very aware” that as mortgage rates continued to rise that it would start to see customers going outside that zone.

The bank had created more face-to-face capacity by opening its branches for longer hours and had opened a new contact centre in Hamilton.

“One of the reasons we are creating more face-to-face capacity with our branches open longer is so they are there for people to have to support those important face-to face conversations we like to have when things are a bit difficult. We have more people on to our contact centres and opened a new hub in the Waikato.”

Mortgagee sales

Mortgage sales have been at record low levels during the pandemic but McGrath said the number was likely to rise.

“We only had 24 mortgagee sales in FY22. They are at very historic lows and as interest rates rise it would be unusual if you didn’t see mortgagee sales increase again to levels that reflect longer-term trends.”

The bank had 70 mortgagee sales in FY17 before Covid-19 was even heard of.

“The reason we are doing all of that outbound engagement early is to do everything it could to help people make any adjustments if they can to help them manage through that shock because obviously, that is the absolute worst-case scenario, that we end up in a mortgagee sale which we really don’t want to do.”

Westpac NZ saw strong lending growth in its latest financial year which helped to bolster its net profit by 12 per cent to $1.047 billion. Although much of the profit rise was driven by the one-off sale of its life insurance business. Excluding that it had a decrease in its cash earnings.

McGrath described it as a “solid” result.

Total loans rose 5 per cent to $96.8b with home lending up 5 per cent to $63.8b. Deposits also increased by 3 per cent to $77.9b.

But McGrath said lending appetite had reduced.

“Which is what you would expect to see given what we can see coming in the year ahead.”

But she said the bank had strong business momentum in terms of increasing its market share of that market.

Business lending

In terms of business lending that had gone up largely driven by its institutional bank where lending rose 14 per cent year on year.

“We have had some small reductions in other parts of our business book and with understandable reductions, particularly in hospitality, tourism and retail and also a bit in manufacturing and wholesaling.

McGrath said business confidence was low.

“The factors impacting that are the rising cost of materials due to inflation, the labour market continues to be pretty tight and obviously increasing interest costs but we have also seen that the low NZ dollar is benefiting exporters and fuel costs seem to have stabilised.

“Overall our customers are faring well and we haven’t seen early warning signs of delinquencies so far.”

McGrath said it had a three-fold focus for the next six months.

“We want to continue to maintain that business momentum, second thing is making sure we help customers with both cost of living and to be more sustainable.”

A big focus was its Westpac warm-up loan scheme. That could help reduce emissions but also leveraging that zero per cent financing it could help reduce utility bills for homeowners as it made it easier to heat home.

“Helping NZers make some of those changes that we all need to make is something we are pretty focused on.”

But the most important thing was making sure its bankers had the capacity to support customers as New Zealand headed into a more challenging economy in the year ahead.