High household debt, declining house prices and the automatic conversion of interest-only loans will continue to drive up mortgage delinquencies in the coming quarters, according to Moody’s latest outlook.
Moody’s Investors Service has maintained its prediction that the prime residential mortgage-backed securities (RMBS) delinquency rate will rise in the coming quarters due to dwindling house prices, record-high levels of household debt (nearly 200 per cent of annual gross disposable income), and the large number of interest-only home loan being converted to principal and interest loans by the end of 2020.
According to the ratings agency, the increase will be “moderate” due to stable GDP growth, low unemployment and recent interest rate cuts by a long line of lenders off the back of the Reserve Bank’s move to drop the official cash rate to the new record low of 1.25 per cent.
The 30-plus day delinquency rate for prime RMBS increased slightly from 1.54 per cent in December last year to 1.58 per cent in March 2019.
For prime RMBS issued by major banks, the 30-plus day delinquency rate was 1.75 per cent in March, up from 1.72 per cent in December 2018.
Delinquencies were lower for regional banks in March and remained stagnant at 1.65 per cent.
For prime RMBS issued by non-bank authorised deposit-taking institutions, the delinquency rate was 0.54 per cent in March, up from 0.50 per cent in December 2018.
The 30-plus day deliquency rate for non-conforming RMBS also increased from 3.23 per cent in December to 3.75 per cent in March 2019.
According to Moody’s, defaults and losses are expected to remain “low” due to continued GDP growth, low unemployment and recent interest rate cuts.
The ratings agency has predicted real GDP growth of around 2.5 per cent this year and next, while the unemployment rate in Australia is projected to remain “relatively stable” at 5.5 per cent over the same period, compared to the 5.2 per cent recorded in April 2019.
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