Moody’s: Mortgage arrears to march higher

From Moody’s

» Delinquencies up Australia-wide, with record highs in two states and one territory. The proportion of Australian residential mortgages that were more than 30 days in arrears (30+ delinquency rate) rose to the highest level in three years as of 31 May 2016. The increase raises the risk of mortgage defaults and is therefore credit negative for Australian residential mortgage-backed securities (RMBS). Mortgage performance deteriorated in all eight Australian states and territories over the year to 31 May 2016. In Western Australia, Tasmania and the Northern Territory, the 30+ delinquency rate climbed to the highest levels since our records began in 2005. Regions and postcodes exposed to the resource and mining sectors dominated the list of areas with the highest mortgage delinquencies. Sydney — where housing market and economic conditions were the most supportive for mortgage borrowers — accounted for the majority of regions and postcodes with the lowest delinquencies. These results are consistent with the performance trends over the last two years.

» Economic factors weighing on mortgage performance. The impact of lower commodity prices, rising underemployment and less favourable housing market conditions are having a negative influence on the ability of borrowers to meet mortgage repayments, leading to higher delinquencies.

» Delinquencies will continue to increase moderately. We expect that mortgage delinquencies will rise moderately for the rest of 2016. Lower commodity prices and the associated slowdown in mining and mining-related sectors will continue to weigh on GDP growth and therefore mortgage performance. We also expect that underemployment — particularly in Western Australia — will persist, and the slowing pace of home price growth to continue, constraining mortgage performance for the remainder of 2016.