Record-low unemployment continues to offset rate increases, report says
Mortgage arrears have hit a two-decade low as record-low unemployment continues to offset Reserve Bank rate hikes, according to a new analysis by Fitch Ratings.
The central bank announced another rate hike Tuesday, increasing the cash rate 50 basis points to 2.35%.
However, Fitch Ratings’ latest mortgage arrears report found that Australia’s 30-day mortgage arrears fell by seven basis points to 0.82% in the three months to June – the lowest level since tracking began in 2002, according to The Australian.
Ahead of the rate rise, HSBC chief economist Paul Bloxham said he expected that strong lending standards would shield Australian banks from a sharp spike in mortgage losses even with higher rates.
Fitch’s report showed that 90-day mortgage arrears fell by four basis points to 0.4% quarter over quarter in June. Late-stage arrears are predicted to remain broadly stable through the rest of the year.
In the medium term, wage growth will be a key factor in delinquencies, The Australian reported. Given strong lending standards, however, mortgage defaults will be minimal, Bloxham told the publication.
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“The RBA suggests that a 300-basis-points rise in rates would not change overall mortgage repayments for around 35% of borrowers,” Bloxham said. “However, the same work shows that around 30% of borrowers will face a sharp rise of over 40% in their repayments. These are the borrowers to worry about, and also the ones whose consumer spending should be expected to slow the most, thereby cooling inflation.”
House prices fell in the first quarter, with Australia’s combined capital cities posting a quarterly decrease of 0.8%, The Australian reported. Fitch Ratings predicts that house prices will continue to fall for the remainder of 2022 and into 2023.
“However, we do not expect price declines to translate into losses for the majority of mortgages due to strong performance over the previous years,” Fitch said.
