The bushfires raging across Australia are likely to lead to elevated mortgage arrears in the coming months and, if weather-related “peril events” continue to become a more regular occurrence, they could reshape the standard arrears fluctuations expected throughout the year, according to a new report from S&P Global Ratings, via Australian Broker.
“Mortgage arrears typically increase during the summer period, reflecting the pre- and post-Christmas spending and extended holiday season, before declining during the second quarter,” the report reads.
“If the longevity and intensity of bushfire seasons become a more regular occurrence, arrears could remain elevated for longer periods in drought-prone areas due to the flow-on effect of bushfire devastation on local employment conditions.”
Local employment conditions such as tourism and agriculture are expected to be impacted, causing debt-serviceability pressures for affected borrowers.
This dynamic will be further compounded in areas with drought conditions, or where agriculture forms a large part of local employment, with arrears predicted to remain elevated for an even longer period of time.
Lenders to borrowers in affected areas will likely experience an increase in financial hardship claims, which they are obliged to consider under consumer laws and banking codes. Possible concessions can include a reduction in the interest rate or payment, lengthening of loan maturity, or full or partial deferral of interest for a temporary period.
