Will the NSW floods cause an increase in mortgage arrears?

An uptick in arrears in might not have a substantial impact on banks' credit ratings, a report says

Will the NSW floods cause an increase in mortgage arrears?



The floods that ravaged communities in New South Wales and Queensland could potentially cause an an increase in mortgage arrears over the coming months, according to the latest report from S&P Global Ratings.

The report said natural disasters typically have a "more pronounced" effect on mortgage arrears in high-density areas given the number of properties affected.

"While most Australian residential mortgage-backed securities transactions do not have significant exposure to affected areas, we expect arrears to increase in the coming months in areas affected by flooding," a statement from the S&P Global Ratings said.

The governments of New South Wales and Queensland have already raised alerts, with the former declaring a natural disaster in several areas.

"The disruption to business activity and incomes will have a flow-on effect on local employment conditions. This could lead to debt-serviceability pressures for affected borrowers. Some borrowers could face similar pressure while they wait to access various assistance schemes and property insurance," S&P Global Ratings said.

The report warned that the risk of inadequate insurance coverage for flood-affected properties could potentially heighten the loss-severity risk for some loans. Still, this would not result in significant changes in the banks' credit ratings given the range of support available.

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