Delinquency rates to ‘hold steady’ over 2022: Moody’s

Residential mortgage-backed securities (RMBS) delinquency rates in Australia have decreased over the last quarter of 2021 according to Moody’s Investor Services (Moody’s), flipping the financial group’s prior prediction.  

According to Moody’s latest figures, 30+ day delinquencies for prime RMBS loans with the major banks fell from 1.39 per cent to 1.15 per cent over the December quarter.

Comparatively, prime loans with regional banks and ADIs both reported decreases of 1.77 per cent to 1.36 per cent and 0.36 per cent to 0.34 per cent respectively. 

The pivot downwards was mirrored by non-conforming and non-prime loans, which sank from 3.20 per cent to 2.88 per cent over the same period.

Moody’s has suggested that this decline in delinquencies is the result of the country’s economy rebounding post-lockdown. 

However, Moody’s has also said it predicts mortgage delinquencies will “hold steady” for the remainder of the calendar year as the economy transitions from “a tentative recovery toward more stable”. 

Coupling this position of financial security are predictions of growth in Australia’s GDP, labour and housing market conditions, all of which are expected to support mortgage performance.

Moody’s vice-president and senior credit officer Alena Chen commented: “We forecast Australian GDP will grow 3.5 per cent in 2022, which will underpin steady mortgage performance.”

Further the report noted, citing Australian Bureau of Statistics data: “The Australian unemployment rate was 4.2 per cent in January 2022, the lowest since August 2008.” 

“Australian house prices increased strongly by an average 3.4 per cent and 22.4 per cent respectively over the quarter and year to January 2022.

“We expect the Reserve Bank of Australia to increase the cash rate in late 2022, which will raise interest rates for variable-rate mortgages.

“Higher interest rates will increase repayment amounts for mortgage borrowers, but the supportive economic environment will offset this risk so that RMBS delinquency rates hold steady this year.”

[Related: RBA governor says 2022 rate hike is ‘plausible’]