Home loan defaults rise as Australia's biggest bank notes cost-of-living strain

More Australians are falling behind on their home loans as high inflation and rising interest rates put pressure on households.

Financial Update

In a trading update for the quarter ending September 30, the Commonwealth Bank reported a seven-basis-point rise in home loans that are more than 90 days overdue. This brings the bank's overdue home loans to 0.80 per cent of its books. The bank made a $2.8 billion profit during the quarter, which is flat compared to previous quarters but up eight per cent from the same time last year. Operating income and expenses both rose by three per cent.

Bad Loans and Provisions

The Commonwealth Bank set aside a $105 million provision to protect against loan book issues, though actual losses from failed loans remain below pre-pandemic levels. Total provisions for bad loans stayed flat at $6.5 billion because other types of loans are performing well. Earlier in the week, ANZ reported a similar trend, with overdue home loans reaching 0.95 per cent of its book. Meanwhile, the Commonwealth Bank recorded a 13.6 per cent increase in business loan volumes and a 6.6 per cent increase for home loans, though new home loan applications remained 16 per cent lower than the same period last financial year.

Leadership Statements

Commonwealth Bank chief executive Matt Comyn stated that high inflation and interest rates continue to place uneven pressure on household incomes and business activity. He added that while economic growth is slowing, the Australian economy remains resilient due to low unemployment and strong public and private investment pipelines. Property data from Cotality shows house prices in capital cities have dropped 8.1 per cent over the last seven months.

Context

Rising interest rates and persistent inflation increase borrowing costs across the economy, which directly affects monthly mortgage repayments for homeowners. Major banks monitor overdue loans closely to manage financial risks during periods of economic slowdown. Property markets often react to these pressures through shifting prices and lower demand for new home loans.