Oz Banks: Downside Risk Scenarios

Australia | Jul 01 2022

mortgage exposures

While Macquarie forecasts a decline of around -15% for house prices, material losses for bank housing portfolios are not expected, despite an elevated level of gearing in the household sector.

The broker forecasts a moderation in housing credit growth through FY22 and FY23, until a nadir is reached later in FY23 as house prices and turnover fall following successive rate rises. By 2024-25 the growth rate is expected to normalise as turnover recovers and house prices stabilise.

Jarden also doesn’t envisage a significant rise in mortgage defaults. On the proviso interest rates don’t rise above 2.5%, recently released research from the broker suggests households in aggregate are well positioned to face higher interest rates and the average borrower has material buffers in place. 

As the unemployment rate is expected to remain relatively low, Jarden assumes most borrowers will continue to meet repayments, so the impact on realised loan losses will be modest. 

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