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Mortgages becoming 'problematic' in hottest markets

A new report has warned that new mortgages in Sydney and Melbourne are at risk of default when rates eventually rise.

According to the Moody’s Australian Housing Affordability Measure, the deterioration in housing affordability in Sydney and Melbourne is “credit negative” for new home loans.

“Less affordable mortgages increase the risk of delinquency and default, particularly if interest rates rise from their current low levels,” it said.

“The larger loan sizes and repayment obligations of new mortgages in Sydney and Melbourne are especially problematic since these mortgages are being underwritten at historically low interest rates.”

The report found that households with two income earners need on average 27 per cent of their wages to make home loan repayments as of 31 March 2015.

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Sydney and Melbourne’s housing affordability measure was at 35.1 per cent and 28.2 per cent respectively in March – up from 32.8 per cent and 27.5 per cent.

The affordability measure in Perth was at 21.9 per cent – down from 24.6 per cent, while Brisbane was at 23.4 per cent – down from 24.4 per cent.

Affordability was steady in Adelaide at 22.1 per cent.

Moody’s research also found that while Australia’s national affordability measure of 27 per cent is lower than the 10-year average of 29.6 per cent, Sydney’s current affordability measure is higher than the 10-year average of 33.6 per cent.

Mortgages becoming 'problematic' in hottest markets

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>According to the Moody’s Australian Housing Affordability Measure, the deterioration in housing affordability in Sydney and Melbourne is “credit negative” for new home loans.

“Less affordable mortgages increase the risk of delinquency and default, particularly if interest rates rise from their current low levels,” it said.

“The larger loan sizes and repayment obligations of new mortgages in Sydney and Melbourne are especially problematic since these mortgages are being underwritten at historically low interest rates.”

The report found that households with two income earners need on average 27 per cent of their wages to make home loan repayments as of 31 March 2015.

Sydney and Melbourne’s housing affordability measure was at 35.1 per cent and 28.2 per cent respectively in March – up from 32.8 per cent and 27.5 per cent.

The affordability measure in Perth was at 21.9 per cent – down from 24.6 per cent, while Brisbane was at 23.4 per cent – down from 24.4 per cent.

Affordability was steady in Adelaide at 22.1 per cent.

Moody’s research also found that while Australia’s national affordability measure of 27 per cent is lower than the 10-year average of 29.6 per cent, Sydney’s current affordability measure is higher than the 10-year average of 33.6 per cent.

Mortgages becoming 'problematic' in hottest markets
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