The risk of mortgage defaults is on the rise in Australia due to worsening housing affordability, a new report has warned.
According to the report by research company Moody’s, housing affordability in Australia has “deteriorated significantly” over the 12 months to October 2015, especially in Sydney, where affordability is the worst it has been in 14 years.
Nationally, Australian households with two income earners spent an average of 29.3% of their monthly income on monthly mortgage repayments as of 30 October 2015, up from 28.2% last year. In Sydney, households spent an average of 39.2% of their income on mortgage repayments as of October 2015, up from 36.1% a year ago and the highest level since 2001.
Despite the average standard variable rate being well below the 10-year average, Natsumi Matsuda, a Moody's analyst, says low interest rates have failed to counteract worsening housing affordability, causing an increased risk of mortgage defaults. The average standard variable interest rate was 5.45% as of October, compared to the 10-year average of 7.07%.
“The current low mortgage interest rates have failed to offset the impact of rising house prices over the past year, and the implementation of interest rate hikes this month will further increase delinquency and default risks for mortgage loans.”
New mortgages in Sydney and Melbourne are especially problematic, warns the report, given the steep housing price increases in these two cities of 17.6% and 15.4%, respectively, over the 12 months to October 2015.
Mortgages from Sydney and Melbourne account for 45% of loans in the rated Australian RMBS portfolio as of May 2015.