Australian mortgage market to 'hold steady' in 2022

Economic recovery will support performance and hold delinquencies steady.

Good news for Australian banks and the mortgage securities market: mortgage performance is expected to “hold steady” amidst continuous economic recovery, according to a report by Moody’s Investors Service.

"We forecast Australian [gross domestic product] GDP will grow 3.5% in 2022, which will underpin steady mortgage performance," says Alena Chen, a Moody's vice president and senior credit officer.

The over 30 days delinquency rate for prime residential mortgage-backed securities (RMBS) decreased to 1.15% in December from 1.39% in September 2021, according to Moody’s, as the economy rebounded from coronavirus lockdowns earlier in the year.

Similarly, the 30+ days delinquency rate for non-conforming and near-prime RMBS decreased to 2.88% in December from 3.20% in September.

Strong labour and housing market conditions will also support mortgage performance, Moody’s said. The Australian unemployment rate was 4.2% in January 2022, the lowest since August 2008. 

Moody's expects the Reserve Bank of Australia to increase the cash rate in late 2022, which will raise interest rates for variable-rate mortgages. 

“Higher interest rates will increase repayment amounts for mortgage borrowers, but the supportive economic environment will offset this risk so that RMBS delinquency rates hold steady this year,” the ratings agency wrote.