Changing economic conditions at home and abroad will result in an increase in the number of Australian mortgage delinquencies in the coming year according to one credit rating firm.
According to the latest monthly review of the performance of Australian prime residential mortgages by ratings firm Moody’s, delinquencies in excess of 30 days rose to 1.20% in November 2015 from 1.14% in October 2015.
Moody’s puts that monthly increase down to seasonal factors such as household overspending in the run up to Christmas, but still believes 2016 will see a higher number of delinquencies than 2015.
"The housing market has shown signs of cooling over recent months," Moody’s assistant vice president – analyst Alana Chen said.
"Strong housing market activity in both Sydney and Melbourne helped foster relatively strong economic performance in the respective states of New South Wales and Victoria in 2015," Chen said.
"But a slower pace of house price growth will mean a slowdown in economic activity and will contribute to a deterioration in mortgage performance in 2016 from current exceptionally healthy levels,” she said.
Moody’s predicts the slower growth of house prices will continue as the Australian economy faces some challenges through 2016.
“Slowing growth in China, Australia's biggest export market, and declining commodity prices, which are at or near multi-year lows, will also put pressure on the Australian economy and contribute to below-trend growth and a soft labour market in 2016,” Chen said.
But while Moody’s predicts a growing number of borrowers are at risk of becoming delinquent, not all are convinced that will be the case.
“With all respect to Moody’s, who have a number of economists working on this sort of thing, I find it difficult to believe we’re going to see a real rise in the number of delinquencies,” Jane Slack-Smith, director of Investors Choice Mortgages, said.
“I’ve been a broker for 10 years and a property investor for a long time too and that’s given me a lot of experience in reading the market and I can’t really see anything at the moment that’s going to cause a rise (in delinquencies),” Slack-Smith said.
Slack-Smith believes the period of low interest rates have allowed a large proportion of Australian borrowers to get in position where they a comfortable with their financial commitments, while others have been prevented from getting in over their heads.
“With the lower interest rates we’ve had I think a lot of people have taken advantage of that. A lot of people have built up their redraw or offset account so they’re in a position where they’re pretty comfortable with everything.
“The other thing is that the APRA and ASIC changes have quelled a lot of irresponsible lending that might have happened.
“It was a pretty heavy handed approach, but the fact that people were assessed on a 7.5% interest rate and the servicing criteria was made tougher means there’s already been a buffer built in so that people can manage if we do see interest rates start to move up.”
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