Missed home repayments low, but can they be sustained?

Australia’s current low interest rate environment has relieved the financial stress of mortgage holders with it being reported that the proportion of borrowers missing home loan repayments has dropped to its lowest level since 2009.

According to credit ratings agency Moody’s, just 1.3% of home loaners were more than 30 days behind their repayments in the September quarter, compared to 1.5% in June. Whilst 1.3% is impressive, things are looking even brighter for the big four banks’ customers with the statistics showing that just 1.08% are behind on their repayments, marking the lowest rate since the global financial crisis and proving that the low interest rates are reducing mortgage stress.

In addition to this however, the low interest rate environment has also driven each of the big four banks to periods of record profitability. The major banks, namely ANZ (ASX: ANZ), NAB (ASX: NAB), Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC), each reported record annual profits which were largely attributed towards low bad debts. Combined, their profit for the year was $27.3 billion.

However, there is concern regarding whether or not these results are sustainable. Although many analysts expect that interest rates will remain low for 2014, they will inevitably increase which would see the rate of problematic loans begin to increase which would eat into profits. Furthermore, Moody’s also recognised that the slowdown in the commodities sector could trigger further troubled loans.

Foolish takeaway

Shares in the major banks have climbed to record highs on the back of their strong performances and, for many, they still present as attractive investments due to their high dividend yields. However, it is important to realise that we invest for the future, not for the past. As such, investors should be very cautious as the record profits will be difficult to repeat when interest rates rise.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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