Mortgage delinquencies to rise in 2016 due to slower economic growth, says Moody's

The number of home owners in Australia falling behind on their mortgage repayments is expected to rise in 2016 though will still remain at low levels as slow economic growth takes a toll, according to credit rating firm Moody's.

Only 1.2 per cent of a sample of 506,000 residential mortgage loans in November are more than 30 days in arrears but that could rise by the end of the year due to below-trend economic growth and a slower pace of house price growth in some cities, writes Su-Lin Tan in the Australian Financial Review.

Mortgage repayment arrears will be highest in states whose economies are resources-driven.

NSW, however, should be the exception as strong economic conditions should nullify the impact of the cooling housing market on delinquencies, says the article.

Sydney dominates the list of areas with the lowest delinquencies.
"We also expect that Australia's GDP growth will likely be towards the upper end of our 1.5 to 2.5 per cent forecast range for 2016, but this will be below the long-term average of 3.5 per cent," Moody's assistant vice-president Alena Chen said.

"We expect the Australia-wide delinquency rate for mortgages showing more than 30 days in arrears to increase in 2016, but remain at a low level."
When housing prices rise, a homeowner has greater incentive to keep a mortgage loan current. When the value of a housing asset falls, borrowers become less motivated to keep up their repayments.

STATES AFFECTED

Mining-dependant states such as Western Australia, Northern Territory, and Queensland will have more home buyers defaulting on their loans.
"Strong house price growth was a supportive backdrop for mortgages borrowers in 2015, helping to keep nationwide delinquencies steady at low levels.

"We expect the pace of house price growth to slow in 2016, leading to the increase in mortgage delinquencies," the report said.

The current rate of 1.2 per cent is flat compared with last year's rate of 1.19 per cent.

Western Australia had the highest delinquency rate out of all the states and territories with the rate up by 0.48 percentage points over the year to 1.71 per cent,
During 2015, six of the 10 worst performing regions in Australia were in Western Australia and Queensland.

These six regions are exposed to industries directly or indirectly related to mining and resources.

The best performers were NSW and the ACT at 0.85 and 0.82 per cent respectively.

Eight of the 10 best performing regions and 14 of the 22 best performing postcodes in Australia, were in Sydney, where house prices have boomed.