Climbing mortgage stress: Are the CBA, ANZ, NAB and Westpac share prices in danger?

Could CBA and the other big four banks be in danger as mortgage stress rises?

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The share prices of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) could be put under the spotlight by rising mortgage stress.

According to reporting by The Sydney Morning Herald, research by the University of NSW has revealed that the percentage of households in mortgage stress has risen to 42%.

This mortgage stress evaluation is based on how much money households have after their normal expenditure (including housing) compared to their income. Households with less than 5% left are deemed to be "stressed". Ones with a deficit of more than 5% are "severely stressed".

The research is based on 52,000 households that are either paying a mortgage or paying rent. It shows that just under 33% were in stress in February 2020, it has now risen to 41.7%. Sydney and Melbourne are the places where stress is particularly popping up. Investors are also reportedly facing increased stress with their loans. This could apply to plenty of the borrowers at CBA, Westpac, ANZ and NAB considering their overall market share of the mortgage market.

man sitting at desk behind sign that says debt help signifying fsa share price

Image source: Getty Images

What does the RBA think is the problem?

Low interest rates are widely acknowledged to be a factor for increasing asset values, not just housing.

However, the RBA also pointed to how property investment is encouraged by the tax system and it also leads to people not moving and selling. Examples included the capitals gains tax concession and how the principal place of residence is excluded from the age pension means test.

The SMH referred to the RBA's submission to a parliamentary inquiry into housing affordability, which mentioned negative gearing:

However…the RBA believes that there is a case for considering the tax system in a holistic way, taking into account the interaction of negative gearing with other aspects of the tax system.

The housing market is a big deal for the big four ASX banks

CBA, Westpac, ANZ and NAB all earn a large amount of their profit from loans to households and property investors.

This report of increasing household stress may not be a good look when it comes recently after UBS' survey showed that a record number of loan applicants were not being truthful on their applications relating to the income, expenses or financial liabilities.

The big four ASX banks aren't the only ones that need to keep an eye on mortgage stress. There are other ASX shares 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 of this mortgage stress. Some banks like ANZ have been launching share buy-backs and releasing credit from their provisions for potential bad debts. Mortgage stress may not necessarily lead to bad debts for the banks considering the high level of house price growth over the last 12 months.

The nationwide COVID-19 vaccination effort may also open up numerous economic sectors so they can get back to earning again.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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