Australian RMBS will weaken moderately in 2020: Moody’s Investors Service

The performance of Australian residential mortgage-backed securities (RMBS) will weaken moderately in 2020, following some improvement in Q3 2019, but delinquencies will remain low overall, according to a new report from Moody's Investors Service.

Their report found tat Australia's muted economic environment, record levels of household debt and the conversion of interest-only mortgages into principal and interest loans will lead to a moderate increase in RMBS delinquency rates in 2020. However, mortgage borrowers are seeing some relief in the form of low interest rates and rising house prices, which should constrain the degree of deterioration.

The 30+ day delinquency rate for prime Australian RMBS decreased to 1.57% in September 2019 from 1.67% in June 2019.

Moody's has lowered its growth forecast for the Australian economy over recent months and now expects real GDP growth of 2.2% for 2020, down from an earlier forecast of 2.5%.

The forecast for 2020 is higher than the 2.0% recorded in 2019, but down considerably from 2.7% in 2018.

Alena Chen, Vice President, Moody’s said, in this economic environment, expect mortgage delinquencies to increase moderately, particularly given that high household debt - which amounts to almost 200% of annual gross disposable income - will leave households vulnerable to economic and housing market shocks."

"However, we expect most mortgage borrowers will be able to continue meeting mortgage repayments at Moody's forecast level of economic growth and unemployment, which means delinquencies will remain low overall," she stated.