According to Moody’s “RMBS, ABS and covered bonds – Australia, 2018 outlook – Delinquencies will increase moderately from low levels, report”, delinquencies underlying Australian residential mortgage-backed securities (RMBS) are expected to “moderately” increase in 2018 from their current low levels.
The housing market is expected to ease, and household finances remain under pressure.
Of note is the rise in the relative share of non-bank lending (who are not under the same regulatory control as the banks) and the continued impact from the mining downturn, especially in WA.
We expect mortgage delinquencies in outstanding RMBS deals to increase moderately from their low levels because of the continued after-effects of weaker conditions in states reliant on the mining industry and less favourable housing market and income dynamics.
With Western Australia and other states reliant on mining pushing up delinquencies this year, this will continue in 2018,
The balance of risks in new RMBS deals will also change, as bank-sponsored RMBS issued in 2018 will include a lower proportion of interest-only, high loan-to-value ratio (LVR) and housing investment loans, following regulatory measures to curb the origination of riskier mortgages.
RMBS issued by the non-banks will include a greater percentage of interest-only and investment loans than has been recorded in the past as these lenders have fallen outside of APRA’s regulatory remit thus far.
