Expect more delinquent borrowers – Moody’s

As loan deferrals and government support get set to expire, the credit ratings agency echoes major banks’ predictions of a spike in arrears

Expect more delinquent borrowers – Moody’s

A growing number of borrowers will fall behind on their mortgage payments in the next few months as COVID-19 support measures expire, credit rating agency Moody’s predicts.

Mortgage arrears fell during the December half despite the economic impact of the pandemic thanks to government support like JobKeeper and banks allowing customers to defer payments, according to a report by The Sydney Morning Herald. However, much of that support is expected to expire at the end of the month.

With that in mind, Moody’s predicted Monday that more borrowers would fall behind on their mortgages in the first half of this year – a prediction echoed by the major banks. The increase in arrears is expected despite the booming housing market.

“Rising house prices will curb mortgage delinquencies to some extent, because they will make it easier for borrowers in financial difficulty to sell their properties and repay loans,” Moody’s said. “But the positive influence of rising house prices will not be enough to prevent delinquency rates from increasing in the first half of 2021.”

Moody’s said that it expected delinquency rates would start to improve again as the economy regained steam in late 2021.

Only 1.44% of major bank customers were more than 30 days behind on their repayments in December, according to Moody’s. That’s down from 1.82% a year earlier.

Banks have also predicted rises in delinquencies this year, despite the economy faring far better through the pandemic than many feared. While many market watchers feared last year that the economy was headed for a cliff, ANZ Bank chief executive Shayne Elliott told the Herald that Australia now faced a “very, very shallow cliff, if at all.”

Read more: Mortgage arrears set to rise – Fitch

However, he said some businesses would still fail and jobs would be lost.

“The reality is that those support programs do end, and so it will be bumpy,” Elliott said. “It is going to be a bit unpleasant – there will be businesses who will fail.”

When Commonwealth Bank reported its earnings last month, chief financial officer Alan Docherty warned that mortgage arrears had been “heavily insulated” by government support schemes. Docherty expected arrears to rise over the six months to June.

Westpac also said last month that it expected a rise in delinquencies over the current financial year as customers left deferral schemes.

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