Delinquencies to rise in 2019: Moody’s

According to a semi-annual RMBS Australia report from Moody’s Investors Service, over 30-day arrears underlying Australia’s residential mortgages will increase in 2019.  

Moody’s said that the rise in delinquencies would be spurred by weakening property market conditions, rising interest rates, high household indebtedness, and the conversion of interest-only loans to principal and interest.

However, the ratings agency stated that the increase in arrears would be “moderate” amid positive “macroeconomic” conditions.

“Delinquencies will increase moderately through 2019,” Moody’s said. “Softening housing market conditions - particularly in the key states of NSW and Victoria - combined with high household leverage, higher interest rates and the conversion of interest-only mortgages to principal and interest repayments, will push up delinquency rates.”

The ratings agency added: “However, macroeconomic conditions will remain supportive, meaning that the increase in delinquencies will be moderate.”

Moody’s noted that mortgage delinquencies have “remained broadly stable” on average, with the proportion of Australian home loans that were more than 30 days in arrears (30-plus delinquency rate) at 1.58 per cent in May 2018, compared with 1.62 in May 2017.

Further, the ratings agency said that throughout 2018, arrears declined moderately in all states except NSW and the ACT over the year.

“Despite increasing, delinquencies in NSW and ACT remained low compared with other states and territories,” Moody’s observed.

“Delinquency rates were lower in capital cities than other regions of each state or territory.”

According to Moody’s, Western Australia and Queensland dominate the list of worst-performing regions, with seven of the 10 regions with the highest 30-plus delinquency rates in May 2018 in either Western Australia or Queensland.

“Many of these regions are exposed to employment industries directly or indirectly related to mining and resources and remain impacted by the after-effects of the mining boom unwinding,” Moody’s said.

Conversely, the ratings agency said that Sydney regions have performed strongly, with seven of the 10 regions with the lowest mortgage delinquency rates in May 2018 in NSW, six of which were in Sydney.

“Eight of the 20 postcodes with the lowest mortgage delinquencies in Australia were in Sydney, while seven were in Melbourne.”

[Related: Back book rate hikes spur arrears jump ]