Australian Mortgage Stress Increases As Delinquencies Rise

The combination of high interest rates and inflation has materially reduced Australia’s household savings ratio to the lowest level since 2008 of 1.1%, which is weakening the ability of financially vulnerable borrowers to meet mortgage repayments. It's important to note though that savings in borrowers outset accounts has surprised many as they had increased toward the end of 2023.

• Cracks have been starting to appear in the Aussie Mortgage sector as delinquencies and arrears start to pick up. Tracking delinquency rates of non-conforming loans from some of Australia's largest Non-ADI RMBS issuers and it is clear that a trend is emerging, looking at seasoned Liberty Financial RMBS deals issued back between 2020-2022 the rate of 30+ day Delinquencies sits above 4% of all loans outstanding (Figure 1. Lbrty), while Pepper Money's (who have been seen to issue slightly riskier loans) 30+ day delinquency rates for similar issues RMBS deals sit between 4-9% of all loans outstanding (Figure 1. Pepau).

Figure 1. Liberty Financial Non-Conforming RMBS

Source: MNI - Market News / BBG

Figure 1. Pepper Money Non-Conforming RMBS

Source: MNI - Market News / BBG

• Australian RMBS deals are well structured with plenty of support built in, so the risk of any of these deals facing trouble is a while off yet, however what it does clearly show are delinquencies are growing and growing at a faster rate than before. Trouble will follow if these 30+ day arrears, turn into 90+ day in arrears. It's important to note that currently 90+ day arrears currently sit between 1-2% of all loans outstanding for both Liberty and Pepper Money deals.