The number of Aussies late on home loan repayments by more than a month will shortly beat the pandemic peak, putting thousands of homes at risk of forced sales.

High interest rates and sticky inflation are continuing to put financial stress on households, Moody’s Ratings warns, with those most at risk being self employed people, low income households and anyone with high loan to valuation ratio mortgages.

NEWS: Investors bailing on rentals in shock new move

Rare capital city suburbs where land is still under $500 sqm

50 cheapest places in Australia to build a house

Moody’s Ratings says the prime RMBS delinquency rate is approaching pandemic-era peak.

---

It found delinquency rates for residential mortgage-backed securities (RMBS) backed by nonconforming and near-prime mortgages – “like loans to borrowers with adverse credit histories or those that lenders assessed using alternative documentation” – hit 4.23 per cent in June quarter from 4.01 per cent in March.

Comparatively, Moody’s Rating found the share of prime-quality home loans at least 30 days in arrears (30+ days delinquency rate) increased marginally to 1.73 per cent in June from 1.72 per cent in March.

Self employed people, low income households and those with high loan to valuation ratios are most at risk now.

---

“Mortgage delinquencies increased by more for nonconforming and near-prime RMBS than prime RMBS over the June quarter, because the deals include a higher share of loans to borrowers who are financially vulnerable in an environment of high interest rates and inflation,” the report said.

“This cohort includes self-employed borrowers, low-income homeowners and those with high loan-to-value ratio mortgages.”

Even so the delinquencies for prime-quality home loans were now also almost at the pandemic-era peak level, Moody’s warned.

For major banks, the mortgage delinquency rate was 1.65 per cent in June last year, and hit 2.25 per cent in June this year. For regional banks, it was 1.11 per cent in June 2023 and went to 1.57 per cent in June 2024.

Where nonconforming and near prime RMBS delinquency rates sit compared to their peak in 2020.

---

Moody’s Ratings said delinquency rates had been rising steadily for the last two years from a historically-low base and were now back up around long-term average levels.

“We expect high interest rates and cost-of-living pressures will continue to weigh on households over the rest of this year, pushing mortgage delinquencies higher,” the Moody’s Ratings report warned.

“Inflation, while easing to 3.5 per cent over the year to July from 3.8 per cent over the 12-months to June, remains above the Reserve Bank of Australia’s 2-3 per cent target band, so interest rates will remain elevated this year.”

FOLLOW SOPHIE FOSTER