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Wednesday, 31 October 2018

IO cliff whooshes past

IO cliff update

I ran through ANZ's results preso for FY2018 on my Twitter feed, so there's no need to rehash that all here.

A couple of interesting points worth mentioning, though.

Firstly, arrears were quite benign, but there was a significant increase in Western Australia, and to a lesser extent the Northern Territory (click to expand the slides).

Source: ANZ

The increase relates to investors not homeowners, and given the improvement in the economy must relate to changed lending policies. 

If you believe in looking at leading indicators - money growth and building approvals, for example -  rather than lagging indicators such as the unemployment rate, then the pressing squeeze on credit is arguably now doing as much harm as good for financial stability. 

Possibly the most interesting slides revealed the large volume of early conversions from interest-only (IO) to principal-and-interest mortgages through 2017 and 2018.

With ANZ's flow of new IO loans at just 13 per cent for the September half to date this has smashed the stock of outstanding IO loans down to just 22 per cent of the home loan portfolio. 

Source: ANZ

The volume of contracted IO loan rollovers remains elevated for the next 24 months according to ANZ's note disclosures.

Hopefully they'll take the foot on investor throats a bit before then.

But if not then they'll barely have any IO loan assets left at the present rate of decline! 

Crayzee times indeed.