Credit ratings agency Standard and Poors recently released its latest health check on the Australian mortgage market via a look at the quality of the residential mortgage-backed securities many lenders use to finance home loans.
S&P found that even a 20% fall in property prices would have minimal impact on these securities, largely because Australians are paying down their home loans so fast with record low-interest rates.
Low interest rates have driven such strong demand for housing and fueled the growth in mortgage lending in the last few years, S&P said.
The key, they say, is the swing in housing costs relative to disposable incomes between home owners and renters.
Home owners’ housing costs as a share of disposable income have fallen, thanks to lower financing costs. Renters meanwhile saw their housing costs relative to disposable income increase immediately after the 2008 financial crisis before flattening out. This has fueled demand for housing and the debt to finance it.
That implies that even with APRA cracking down on investment lending demand may remain strong for a while, especially if the RBA has the door open to further rate cuts.
Here’s the chart:
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