Rising interest rates will trigger defaults on Australian home loans and commercial mortgages, causing deterioration in the quality of assets underpinning mortgage-backed bonds, according to Fitch Ratings.
Three straight interest rate rises last year and further increases expected in 2010 may cause Fitch’s Dinkum Index, which measures delinquency rates on prime home loans, to climb to as much as 1.5 per cent this year from 1.21 per cent at Sept 30, the London-based risk assessor said in a report yesterday.
‘The improvement in Australia’s structured finance asset performance, which was experienced during 2009, thanks to historically low interest rates and a resilient economy, is unlikely to continue during 2010,’ David Carroll, a director in Fitch’s Australian structured finance team, said in the report. ‘Rates will continue to rise during 2010 and structured finance arrears are likely to trend up,’ he said in an interview.
Central bank governor Glenn Stevens unexpectedly kept the overnight cash rate target at 3.75 per cent on Tuesday, opting to support the economy’s acceleration and stem inflation later. Borrowing for home buying fell to a five-year low last month, according to Australian Finance Group. Colonial First State, Australia’s biggest asset manager, froze an A$850 million (S$1.06 billion) mortgage income fund to withdrawals on Jan 14 after signs that some commercial property loans may sour.
Australian household debt remains a concern, with the ratio of household debt to disposable income standing at 156 per cent as of June 2009, Fitch said.
The increase in delinquencies isn’t expected to be severe enough to affect the ratings of mortgage-backed bonds, according to Mr Carroll. Australian Finance Group says that it accounts for more than 10 per cent of the nation’s mortgage market. The group arranged A$1.55 billion of mortgages in January, 19 per cent less than a year earlier and the lowest level for any month since 2005.
Source: Business Times, 4 Feb 2010
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