This article is from the Australian Property Journal archive
A SIGNIFICANTLY lower take-up of loan deferrals is expected this year than in 2020, according to Fitch Ratings, as unemployment levels and interest rates remain low, and borrowers continue to have access to deferral programs.
Fitch’s latest Dinkum RMBS Index shows Australia’s 30-plus days mortgage arrears rose by nine basis points to 1.14% over the June quarter, largely as a result of a small subset of transactions with high payment deferrals in the March period.
The data does not include the effects of the current lockdowns in Sydney and New South Wales, and in Melbourne and Victoria.
During the 2020 lockdowns, loan deferrals peaked at 7.9%. Report authors, Fitch director Timothy Groombridge and senior directors Chris Stankovksi and Natasha Vojvodic said they expect deferrals to be less than 1% this year, assuming lockdowns are eased by the end of October, while lenders have brought back payment holidays to help borrowers struggling with the economic fallout of current lockdowns.
“We do not expect recent lockdowns to affect future arrears because of our expectation that there will be lower levels of deferrals,” the economists said.
The 30 days-plus delinquency rate at the end of June rose nine basis points to 1.14%, below the 1.17% seen 12 months earlier, and is expected to move lower through the rest of the year.
However, the economists said the reinstating of lockdowns in Australia may result in increased underemployment in 3Q21 and 4Q21, after the June quarter saw underemployment levels fall to 7.9% and the unemployment rate down to 4.9%
“The Dinkum 30-plus day arrears have been low due to low interest rates and minimal unemployment. This allows borrowers to service debt, despite little wage growth. However, arrears are sensitive to a rise in unemployment rates due to the high ratio of household debt/disposable income, which has increased significantly over the last three to four years,” the report authors stated.
“Arrears were also lower last year as borrowers hurt financial by Covid-19 could take payment holidays.
“Higher unemployment and underemployment could amplify loan-servicing pressure and, in turn, increase delinquencies and foreclosures.”
The recovery in home prices remained strong in the June quarter. Australia’s eight capital cities recording the highest quarterly increase in more than a decade of 6.2%, and prices rose 12.4% year on year, as all capital cities registered growth – six at double-digits.
Fitch expects price rises to slow throughout the rest of 2021 due to increasing affordability constraints, which are already providing a drag on increases.
“We expect national home-price gains to slow throughout the remainder of 2021, although home-price performance will vary across the nation.
“High-density inner-city apartments in Sydney and Melbourne may underperform due to low rental demand from international travellers, while regional town and second-tier cities with established transport corridors to Sydney and Melbourne should outperform, benefiting from increased labour mobility and domestic tourism.”
Losses from the sale of collateral property are expected to stay low due to a recovering economy and strong home-price growth. Conditional prepayment rates for non-bank transactions, at 27.2%, remain higher than those issued by banks, likely due to borrowers refinancing at lower fixed-interest rates.
