Monetary tightening tests Australia’s residential mortgage-backed security market

Rising interest rates will put pressure on arrears, said S&P.

Australia’s recent monetary tightening will test the resilience of Australia’s residential mortgage-backed security (RMBS) sector, reports S&P Global Ratings. 

Borrowers saddled with a large household debt face a new burden on the change in interest rates.

"Rising interest rates will put pressure on arrears," said S&P Global Ratings credit analyst Erin Kitson. "But sensitivity varies across different borrower cohorts, given differences in credit profiles, leverage, and income levels.”

Low unemployment and the credit support built up in transactions should limit ratings pressure amid uncertainty over the duration of monetary policy tightening, Kitson added.