Are CBA, ANZ, NAB and Westpac stock prices at risk?
Image source: Getty Images
The stock prices of Commonwealth of Australia Bank (ASX: ABC), Westpac banking company (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) could be put in the spotlight by rising mortgage stress.
According to the report of The Sydney Morning Herald, A study from the University of NSW found that the percentage of households under mortgage stress rose to 42%.
This mortgage stress assessment is based on how much money households have after their normal expenses (including housing) compared to their income. Households with less than 5% remaining are considered “stressed”. Those with a deficit of more than 5% are “severely stressed”.
The research is based on 52,000 households paying a mortgage or rent. It shows that just under 33% were under stress in February 2020, it has now risen to 41.7%. Sydney and Melbourne are the places where stress is particularly present. Investors would also face increased stress with their loans. This could apply to many borrowers from CBA, Westpac, ANZ, and NAB, given their overall market share in the mortgage market.
What does the RBA think is the problem?
Low interest rates are widely recognized as a factor in increasing the value of assets, and not just housing.
However, the RBA also pointed out how real estate investing is encouraged by the tax system and this also leads to people not moving out and selling. Examples included the capital gains tax break and how the place of primary residence is excluded from the means test of the age pension.
The SMH referred to the RBA’s submission to a parliamentary inquiry into housing affordability, which mentioned a downward spiral:
However… the RBA believes that the tax system should be viewed in a holistic way, taking into account the interaction of the negative gear with other aspects of the tax system.
The housing market is a big problem for the big four ASX banks
CBA, Westpac, ANZ, and NAB all derive a large portion of their profits from loans to households and real estate investors.
This report on increasing household stress may not be a good idea when it comes recently after a UBS survey showed a record number of loan seekers were not being truthful in their claims regarding income, expenses or financial debts.
The Big Four ASX banks aren’t the only ones with an eye on mortgage stress. There are other ASX stocks involved in mortgages, including Bank of Queensland Limited (ASX: BOQ), Suncorp Group Ltd. (ASX: SUN), Bendigo and Adelaide Bank Ltd (ASX: BEN) and MyState Limited (ASX: MYS).
It will be interesting to see if anything comes from this mortgage stress. Some banks like ANZ have initiated share buybacks and released credits from their provisions for potential bad debts. Mortgage stress doesn’t necessarily lead to bad debts for banks, given the high level of house price growth over the past 12 months.
The national COVID-19 vaccination effort can also open up many economic sectors so they can start making money again.