subscribe to our newsletter

‘Muted’ economy to ‘dent’ RMBS quality

Subdued growth in the domestic economy is set to spur a deterioration in credit quality in 2020, according to Moody’s.

According to Moody’s Investors Service, the performance of Australian residential mortgage-backed securities (RMBS) are set to “weaken moderately” in 2020, following improvements in the third quarter of 2019 (3Q19) when prime over 30-day arrears fell from 1.67 per cent to 1.57 per cent.

Moody’s has claimed that a rise in mortgage delinquencies would be triggered by Australia’s “muted economic environment”, record levels of household debt, and the conversion of interest-only home loans to principal and interest.

The ratings agency has downgraded its real GDP growth forecast for 2020, from 2.5 per cent to 2 per cent – this is higher than the 2 per cent growth recorded in 2019 but well below growth of 2.7 per cent in 2017.

However, Moody’s noted that upward pressure on arrears rates would be offset by low interest rates and the rebound in the residential property prices, which would reduce the number of mortgage-holders in negative equity.


An additional cut to the cash rate will likely place further downward pressure on interest rates.

The Reserve Bank of Australia (RBA) is expected to lower the cash rate for the fourth time in February when its monetary policy board next meets.

Shane Oliver, chief economist at AMP Capital, is expecting back-to-back cuts in February and March, which would take the cash rate to 0.25 per cent.

Further, the latest Home Value Index, released by property analytics company CoreLogic, revealed that the value of properties sold across Australia in the month ending 30 November 2019 grew by 1.7 per cent.

According to CoreLogic, there have now been five consecutive increases in the national index, with the November report showing the largest monthly gain in the national index since 2003 and the first positive annual growth (at 0.1 per cent over the past 12 months) since April 2018.


As a result, Moody’s observed: “Moodys expects most mortgage borrowers will be able to continue meeting mortgage repayments at Moodys forecast level of economic growth and unemployment, which means delinquencies will remain low overall.”

[Related: Arrears rates pose little risk to financial stability]

‘Muted’ economy to ‘dent’ RMBS quality
Moodys Investors Service

Latest News

The chief of Australia’s largest bank has said lenders should act pre-emptively and shift their floor rates for mortgage serviceability am...

Total household wealth reached a high of $13.4 trillion in the June quarter, primarily due to rising property prices, according to the Aust...

The property exchange settlement platform has been granted approval to establish an Electronic Lodgement Network in the ACT.  ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.