Fixed rate cliff - passed with a whimper?

Fixed rate cliff

Australia's fixed rate cliff has mostly passed with barely a whimper in the end, with the bulk of the fixed rate loans written at ultra-low mortgage rates now having reset without undue concern.

Prime 30+ day mortgage arrears were flat in November 2023 at 0.95 per cent, having declined after briefly touching 1 per cent in May last year. 

Non-conforming loans arrears haven't been much of a pressing issue in Australia in recent years, following significant tightening of lending conditions since the global financial crisis. 

The reason arrears have declined against since May has largely been down to booming conditions in Western Australia. 

WA was the problem child in 2019 when arrears hit 3 per cent, but now arrears are lower than in Victoria at just 1.44 per cent and falling fast.

Rental markets have been extremely tight around the country, and therefore it's little surprise than investor loan delinquencies have been markedly than for owner-occupiers over recent times. 

This again calls into question why investor loans are assessed more punitively, with rental shading and other restrictions, at a time when we have prospective renters furiously scouring Facebook chat communities looking for any sort of available accommodation. 

Eye-balling these graphs suggest that if there's a risk for the remainder of the fixed rate reset, it's for owner-occupiers in the more indebted cohorts, and possibly in some of the regional locations where home values have come off their highs.

Overall, however, the biggest hit to the economy over 2024 will likely be to household consumption and retail trade as the unemployment rate steadily rises. 

Fortunately some the gloomier forecasts of a flood of mortgage delinquencies kicking up have not come to pass. 

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Borrowing power for many households will increase in 2024 as a result of the Stage 3 income tax cuts, especially for 2-income households earning tup to $200,000 per annum.

Source: Redom Syed, Confidence Finance

At some point the lending assessment buffer should also be reduced, but not holding my breath on that one.

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