This article is from the Australian Property Journal archive
A COCKTAIL of rising inflation, higher interest rates and worsening housing market conditions will see mortgage delinquency rates rise over the rest of 2022, according to Moody’s.
However, the increase will be moderate as rates remain low.
“The risk of mortgage delinquencies will be highest for borrowers with high loan balances and where amounts are close to buyers’ maximum borrowing capacities,” said Alena Chen, a Moody’s vice president and senior credit officer, in the firm’s new report, RMBS – Australia Mortgage delinquencies will increase as inflation and interest rate rises.
“Over the remainder of 2022, mortgage delinquency rates will increase moderately because of rising inflation, higher interest rates and worsening housing market conditions,” she said, adding that the moderate increase will be because interest rates, while rising, are still low.
The Reserve Bank of Australia on Tuesday raised interest rates for a second straight month, this time by 0.5% percentage points to 0.85%.
It flagged that it will have to increase rates further to lower inflation, which will be pushed higher than expected by higher electricity and gas prices, while rising rates have dragged down house prices, reducing the likelihood that borrowers in financial trouble can sell properties at high enough prices to repay their debt.
Australia’s unemployment rate is at the lowest level since 1974, at 3.9% in April, and Moody’s forecasts GDP will grow 3.2% this year. The consumer price index rose 5.1% in the March quarter, the highest quarterly increase since 2009.
Capital Economics senior economist Marcel Thieliant said the 50 basis point hike is consistent with its view that interest rates will peak at higher levels than most anticipate, with the firm expecting rates to peak at 3% by early-2023, lower than the 3.5% priced in by financial markets.
AMP Capital chief economist Shane Oliver is tipping rates to rise to 1.5% to 2% by year-end and to peak at 2% to 2.5% by mid next year.
The Moody’s report showed mortgage arrears fell for Australian prime RMBS in the March quarter, but rose for non-conforming and near-prime RMBS.
The 30-day plus delinquency rate decreased to 1.09% from 1.12% in December, while the 30-day plus delinquency rate for non-conforming and near-prime Australian RMBS increased to 3.04% in March from 2.61%, although it below the 3.44% from 12 months ago.
Delinquency rates varied across RMBS by different types of issuers in the March quarter. Major banks sae 1.43%, regional bank 1.30%, other authorised deposit-taking institutions (ADI) 0.45%, and non-ADIs 2.66%.
