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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.
