Australia’s major banks have only repaid a very small fraction of the $188billion they borrowed from the Reserve Bank to provide very cheap home loans during the Covid pandemic.
The RBA’s annual report for 2023 revealed just $12billion of that staggering sum had been repaid by the end of June this year, with the banks only beginning repayments in April.
That meant $175billion was still outstanding from 84 banks, as 1.3million Australian borrowers face a mortgage cliff – where they are forced onto a higher interest rate – in the coming year.
Australia’s major banks have only paid back a very small fraction of the $188billion they borrowed from the Reserve Bank at the height of the pandemic to provide very cheap home loans
The Reserve Bank in 2020 and 2021 lent $188billion to the banks, via a policy called its Term Funding Facility, so they could provide ultra-cheap, fixed rate home loans with a two per cent mortgage rate.
But two years on, 93 per cent of that wholesale money is still to be repaid, despite the banks making record profits.
The Commonwealth Bank – which made a record $10.2billion cash profit during the last financial year – was allocated $51.14billion of the Term Funding Facility, as Australia’s biggest home lender.
NAB by comparison received $31.87billion, compared with Westpac’s $29.78billion and ANZ’s $20.09billion.
Australia’s banks won’t have repaid back all of the Term Funding Facility program until mid-2024.
Another $64billion is being repaid by the end of September this year, with the remaining $111billion being repaid by mid next year.
The RBA’s policy underpinned ultra-low fixed rate loans, which are still to expire in 2023 and 2024.
The Reserve Bank estimates 880,000 of these fixed rate loans are expiring in 2023, followed by another 450,000 loans in 2024.
‘Another area of focus was the share of borrowers who took out fixed-rate loans during the period of very low interest rates,’ the RBA said.
‘These borrowers face large increases in their scheduled mortgage repayments once their fixed-rate periods expire over 2023 and beyond, similar in size to the increases experienced by variable-rate loans to date.’
A borrower who fixed their mortgage at 1.92 per cent, for three years, in 2021 faces moving on to a much higher ‘revert’ rate of 7.43 per cent.
Monthly repayments on an average, $600,000 mortgage would surge by $1,733 or 69 per cent to $4,251, up from $2,518 when they fixed their loan as part of a 25-year term, a RateCity analysis showed.
The fine print at the time said a borrower would switch to a variable rate that was 3.3 percentage points above the RBA cash rate, which is now at an 11-year high of 4.1 per cent following 12 increases since May 2022.
Those who didn’t fix their mortgage have seen their variable, monthly repayments climb by 63 per cent since May 2022, when the RBA cash rate was still at a record-low of 0.1 per cent.
But the RBA was adamant most borrowers could cope.
‘Bank research found that the vast majority of both variable- and fixed-rate borrowers rolling onto higher variable rates were, to date, able to manage these pressures by drawing on their savings buffers, reducing their spending and/or their rate of saving,’ it said.
Mortgage stress isn’t an issue the Reserve Bank’s board members deal with personally.
The Reserve Bank’s previous governor Philip Lowe was paid a total package of $1,147,465 in 2022-23.
His successor Michele Bullock received $828,313 as his deputy.
The Reserve Bank’s previous governor Philip Lowe (right) was paid a total package of $1,147,465 in 2022-23. His successor Michele Bullock (left) received $828,313 as his deputy