“We expect mortgage delinquencies in outstanding residential mortgage-backed securities to increase moderately in 2019 given the cooling housing market and Australia’s record-high household debt, which amounts to 191 per cent of annual gross disposable income,” Moody’s said.
“Although we do not expect material interest rate rises in the immediate future, Australian households remain vulnerable to an interest rate shock.”
“We expect the moderate price correction in Sydney and Melbourne to continue, reflecting reduced credit supply by the banking sector and a seeming reduction in demand from households.”
Related: Housing Finance Hits 5-Year Low
Lending peaked in 2014, led by property investors who sought to supercharge their borrowing power by taking out loans in which the principle typically isn’t repaid for the first five years.
Such loans have been targeted by regulators in two waves of macro prudential restraints, in 2014 and 2017, amid concerns they were stoking dangerous house price bubbles in Sydney and Melbourne.
Sydney and Melbourne house prices have now slumped to 7.4 per cent and 4.7 per cent respectively.