This article is from the Australian Property Journal archive
RESIDENTIAL mortgage delinquency rates will continue to rise in 2024 as mortgage repayment costs significantly outpace income growth.
According to the latest data for residential mortgage-backed securities (RMBS) from Moody’s Investors Service, the share of prime-quality home loans that were at least 30 days in arrears rose to 1.62% in December.
This was up from 1.45% in September 2023 and up from 1.05% in December 2022.
At the same time, the delinquency rate for nonconforming mortgages hit 3.91% in December 2023 from 3.39% in September.
However, delinquency rates still remain below the peak levels witness during the peak response period to the COVID-19 pandemic.
The RBA’s cycle of interest rate hikes since May 2022 has significantly impacted the market, including mortgage repayment amounts, with the increase in mortgage repayment costs eclipsing income growth.
This imbalance will continue to impact mortgage customers’ ability to pay their monthly home loan instalments and will result in higher delinquency rates throughout 2024.
This comes as hardship requests are rising, with any savings buffers built up since the onset of the pandemic now exhausted, according to ANZ and the Council of Financial Regulators.
With recent analysis from S&P Global Ratings, forecasting tested resilience against prime mortgage arrears in 2024, with savings ratios have fallen from 24% during the peak of COVID to just 1%.
Since the RBA commenced its rate hikes, the total amount of scheduled mortgage repayments is up 44% compared to just a 7% increase in average weekly earnings over the same period.
This has left the scheduled repayments to income ratio up from 7.2 March 2022 to 9.7 in September 2023.
Customers who took out a mortgage in 2021 and 2022 are at significant risk, with delinquency rates for RMBS issued in 2021 and 2022 having increased at a higher rate than other recent vintages.
This is due to these customers to buying when house prices were high, resulting in a larger monthly instalment and because interest rates for these borrowers are above the serviceability assessment rate.
Overall, delinquency rates are only expected to increase moderately, due to low unemployment, paired with rising house prices providing borrowers with equity.
