As the property boom moderates and higher volatility pushes up prices, the issuance of securities backed by mortgages of home loan lenders has dried up, reversing healthy activity in recent years.
Standard & Poor rated new residential mortgage-backed securities (RMBS) 68 per cent lower to $3.4 billion for the first quarter, labeling it as a 'lacklustre start' to the year. Experts predict an even weaker issuance for the rest of the year.
"In terms of new issuance prospects, Australian RMBS will remain dependent on domestic and global financial market conditions, ongoing regulatory developments, investor confidence, and appropriate risk pricing," the ratings agency said. "In particular, the regulatory treatment of securitization instruments will remain a key driver of investment demand and liquidity in coming years, in our opinion."
According to Alisha Treacy, an analyst at S&P, the drop in issuance could be partly due to softer demand from investors who buy RMBS. Philip Bayley from ADCM Services said that lenders started to step back from the RMBS market at the end of last year as deals became more expensive due to the US Federal Reserve's rate hike.
"Then financial markets were in turmoil in the first quarter, as some were predicting financial Armageddon. Issuance volumes will be lower when credit spreads are wider," he said.
The softer RMBS market has coincided with rising concerns about the property market, particularly the worsening apartment glut. Several investors are betting that it could get even worse, with Moody's revealing that 30-plus day delinquencies for prime RMBS increased by 18 per cent in the first quarter to 1.51 per cent.
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