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Credit ratings agency Moody’s predicts more Australians will struggle to repay mortgage in 2020

Record high household debt and a slowing economy will cause MORE people to default on their mortgage next year

  • Credit ratings agency Moody’s Investors Services fears rise in mortgage arrears
  • It issued note about Australia’s record-high debt levels – world’s second highest 
  • Moody’s has also downgraded its forecast for Australia’s economy growth pace 
  • More than 150,000 borrowers will see loans convert to principal and interest 

More Australians are expected to struggle repaying their mortgage next year, despite record-low interest rates. 

Australia’s household-debt-to-income ratio already stands at a record 190 per cent, which is second only to Switzerland.

American credit ratings agency Moody’s Investors Service has this week issued a note predicting a rise in delinquencies, where a home borrower is a month or more overdue with their mortgage repayments.

A leading global credit ratings agency fears Australian mortgage arrears will increase in 2020 because of record-high debt. Australia’s household-debt-to-income ratio already stands at a 190 per cent, which is second only to Switzerland (stock image) 

It said the number of struggling Australian borrowers would ‘increase moderately over the next year, given the muted economic environment, high household debt and, to a lesser extent, the conversion of interest-only mortgages to principal and interest loans’.

In 2020, more than 150,000 borrowers are set to see their mortgage repayment levels surge by an average of $6,300 next year.

In 2015, interest-only loans comprised 41.4 per cent of all home loan approvals, Australian Prudential Regulation Authority data showed.

Those who took out an interest-only loan four years ago are set to be squeezed next year as they are forced to pay principal and interest.

For five years, Australians with an average mortgage of $400,000 were paying $1,500 a month on repayments.

From next year, that is set to surge by 35 per cent to $2,027, Digital Finance Analytics calculated.

This $527 difference in monthly mortgage repayments would add up to $6,324 annually, based on someone having a 30-year loan.

The Reserve Bank of Australia left interest rates on hold this month at a record-low of 0.75 per cent.

Governor Philip Lowe, however, hinted interest rates could be cut again in 2020, to an unprecedented 0.5 per cent, in a bid to boost a slow economy.  

American credit ratings agency Moody's Investors Service has this week issued a note predicting a rise in delinquencies, where a home borrower is a month or more overdue with their mortgage repayments (stock image)

American credit ratings agency Moody’s Investors Service has this week issued a note predicting a rise in delinquencies, where a home borrower is a month or more overdue with their mortgage repayments (stock image) 

‘The board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time,’ he said in a statement on Tuesday.

The Reserve Bank of Australia left interest rates on hold this month at a record-low of 0.75 per cent. Governor Philip Lowe (pictured) hinted interest rates could be cut again in 2020 in a bid to boost a slow economy

The Reserve Bank of Australia left interest rates on hold this month at a record-low of 0.75 per cent. Governor Philip Lowe (pictured) hinted interest rates could be cut again in 2020 in a bid to boost a slow economy

Australia’s economy grew by just 1.4 per cent during the last financial year, the slowest pace since the global financial crisis a decade ago. 

This is less than half the average level of 3.2 per cent since the 1991 recession. 

While the pace of growth is expected to pick up, Moody’s is less optimistic than the RBA about 2020.

‘We have lowered our growth forecast for the Australian economy over recent months,’ it said.

Moody’s Investors Service has downgraded its gross domestic product expansion forecast from 2.5 per cent to 2.2 per cent. 

Mortgage delinquency rates fell from 1.67 per cent in June to 1.57 per cent in September however the credit ratings agency was expecting a small increase for 2020.

A recent recovery in Sydney and Melbourne house prices meant more struggling borrowers would be able to sell without being in negative equity, where they owe more than their property is worth.

Perth borrowers in dire straits won’t be so lucky. 

Read more at DailyMail.co.uk


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