Home News Higher risk of mortgage defaults due to recent price surge, says report

Higher risk of mortgage defaults due to recent price surge, says report

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Sydney’s recent property boom has increased the risk of borrowers falling behind in their repayments, according to a report by Moody’s.

The report discovered that the city’s affordability took a sizeable hit after a 17.6% price growth in the past 12 months. This has increased the risk of borrowers defaulting on their loans, especially when the proportion of their household incomes set aside for mortgage repayments increased as well.

On a national scale, households comprised of two income earners would, on average, spend 29.3% of their monthly income on mortgage repayments as of October, higher than the 28.2% last year, according to the report.

Sydney, however, dropped to its lowest affordability level in 14 years, with households spending an average of 39.2% of their income for mortgage repayments, up from 2014’s 36.1%. Even new mortgage holders are being threatened by the rise in property prices.

 “The current low mortgage interest rates have failed to offset the impact of rising house prices over the past year, and the implementation of interest rate hikes [from lenders] this month will further increase delinquency and default risks for mortgage loans,” Moody’s analyst Natsumi Matsuda commented.

On the other hand, senior economist for Domain Group Andrew Wilson believes that the surge in house prices and its resulting increase in default risk was not a concern with Sydney’s relatively strong economy.

“Defaults still remain low and even though the risks have increased, the key is the economy and the fundamentals are still strong,” he was quoted as saying in Fairfax Media.
Wilson anticipates that mortgage defaults will remain at record low levels for the city.

Domain Group’s House Price Report for the month of September discovered that Sydney’s house price growth increased only by 3.2% over the quarter, its slowest result since March last year.



 

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