Westpac pays price for late cycle mortgage frenzy

Yesterday we saw Westpac’s credit quality on the slide:

Banking Day has more:

Westpac is now starting to count the cost of its aggressive pitch for mortgage volumes at the peak of the housing market in 2016.

According to the bank’s latest trading update published on Monday, credit quality across most of the group’s lending portfolios deteriorated in the June quarter led by a significant increase in stressed home borrowers.

…Westpac’s credit quality could potentially accelerate faster than its peers in the next year because it was the last of the major banks to rein in sales of interest only loans and non-standard mortgages at the peak of the housing boom in 2016.

According to sales data published by the AFG mortgage broking network in 2017, Westpac and its regional subsidiaries accounted for 30 per cent of all investor loans originated in the first half of that year.

That was more than double the market share of ANZ, which had the second largest share of the market over the same period.

Westpac’s decision to delay cutting loan volumes until June 2017 might mean it is now more exposed than other banks to slowing economic conditions in Australia.

Put simply, it has a disproportionate exposure to the 2016-17 mortgage vintage that is characterised by borrowers who paid top-of-the-cycle prices for residential properties.

Arrears are still low but they’re clearly shifting higher. The race is on to get house prices rising.

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