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In its Global Housing and Mortgage Outlook for 2018, Fitch Ratings predicted that lending growth would drop to 4 per cent, as a result of “tighter lending practices”, “reduced investment demand” and “continued underemployment”.
Fitch has also predicted that home prices in Sydney and Melbourne will “stabilise” in 2018 due to “low interest rates, falling rental yields, increasing supply, limited investment alternatives and growing dwelling completions, partially offset by high population growth”.
Further, the ratings agency forecast that demand from first home buyers (FHBs) will decline, following a year-on-year increase in FHB activity from 13 per cent in 2016 to 17 per cent in 2017. It attributed the predicted fall in demand to “low income growth, tighter underwriting and higher living costs”.
The Fitch Ratings outlook noted that “APRA-prescribed regulations” have improved borrowers’ abilities to service their mortgages, but it claimed that “sluggish wage growth” and higher costs of living pressures would have a negative impact on “recent borrowers” with “little disposable income”.
In its report, Fitch Ratings also echoed concerns over Australia’s record-high household debt level, as recent data from the Australian Bureau of Statistics (ABS) revealed that household debt to income was reaching 200 per cent.
The ratings agency noted that Australia’s household debt in proportion to GDP is higher than any other “tracked” economy, claiming that the high ratio “increases reliance on a strong economy”.
Additionally, in its Fitch 2018 Outlook: Australian Banks report, released earlier this month, Fitch Ratings attributed a predicted increase in loan impairment charges and the banking sector’s high exposure to residential mortgages to its decision to downgrade its outlook for 2018.
The ratings agency’s report cited an expected rise in loan impairment charges, challenges to asset quality and a drop in write-backs as further justification for its negative outlook.
Fitch also noted that tightened regulations imposed on the industry are likely to reduce business volumes and increase compliance costs, which it expects will have a negative impact on the banks’ bottom line.
[Related: ‘Housing bubble beginning to deflate’: UBS]