A report from S&P Global Ratings has illuminated how the rising unemployment in Australia will likely shape mortgage arrears in the months to come.
While the figures are expected to remain largely stable during the defined mortgage-relief periods, with lenders excluding any loans under COVID-19 support arrangements from their arrears reporting until after the period ends, the effects of the pandemic-induced economic pressure will likely begin registering in around 12 months.
However, the rise in arrears will not occur evenly throughout the country; levels will diverge nationwide as the transition back to “normal” will occur at different paces among the states and territories.
Additionally, arrears are likely to be more pronounced in areas where tourism is a major employer and could remain elevated for longer as international travel remains off the cards.
The dynamics of local property markets will also play a role in influencing borrower refinancing activity and the level of losses in the event of borrower defaults.
While S&P analysis does not forecast all borrowers under COVID-19 support arrangements will move into formal arrears management and foreclosure processes in the next 12 months, the overall increases in arrears will likely be higher than what occurred after the 2008 Global Financial Crisis as the forecasted increases in unemployment are larger.
Prepayment rates will almost surely decline in coming quarters as borrowers are unable to make additional repayments in the current economic environment.
All of this will contribute to property prices likely falling over the next 6-12 months, according to S&P. The group predicts values will fall about 10% due to a decline in demand, before resuming modest growth around June 2021.
