S&P Ratings, one of Australia’s leading credit rating agencies, released a report suggesting the mortgage market is booming despite lingering problems in the rest of the economy, and saying it could, so far at least be ‘pandemic proof’.
The unique situation of the mortgage market, with ultra-low interest rates, high savings levels and active refinancing, could lead to a situation where the mortgage market displays an unusually high level of recession resilience, blockages and the pandemic.
“What the report and the performance statistics show, particularly on the mortgage arrears front, is that the pandemic has not had a significant impact on household debt servicing, that is, – say people can pay off their mortgages, ”said Erin Kitson, an RMBS. analyst at S&P.
“This was supported by a few key factors. First and foremost is the historically low interest rate market, as the Australian mortgage market has a high proportion of variable rate mortgages and the loans underlying RMBS transactions are weighted more by variable rates.
“There’s a pass-through effect there, because with a drop in interest rates, you usually see an improvement in debt service. It is a key factor.
“The other thing that helps, which is a pandemic nuance, is that household savings have piled up.”
“There are fewer spending options, especially without overseas travel and less interstate travel, especially if you’re in Victoria or now in New South Wales. This has contributed to an accumulation of household savings.
“Obviously from a consumer perspective it’s not great because the RBA is hoping people will spend and not save, but from a debt servicing perspective, if you have household savings , you have repayment pillows to help you under pressure on your income. continue to face mortgage repayments.
“What also contributes to debt service are the strong refinancing terms, which indicate strong and competitive loan terms. Strong refinancing terms allow borrowers who are under financial pressure to extricate themselves from arrears by seeking another mortgage at a better rate from another lender.
“It’s a common way to self-manage to escape financial pressure, and given the stiff competition with these ultra-low fixed-rate mortgage offers, there’s a lot of refinancing. This is another important plus point for ease of maintenance.
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