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Are Australian mortgage holders facing a cliff or a speed bump?
August 23, 2023
The mortgage cliff may not yet have appeared, but we’re only halfway through the roll-off of Covid-era fixed-rate loans, points out Pendal assistant PM ANNA HONG
- Why bonds, why now? Find out more from Pendal’s income and fixed interest team
AUSTRALIAN house prices look to have turned the corner.
But what about mortgage stress?
We’ve repeatedly heard the mortgage cliff warnings since the Reserve Bank started hiking rates.
Yet the cliff doesn’t appear to have appeared.
It’s bank reporting season and the latest updates show mortgage arrears remaining relatively stable, only picking up slightly in the June quarter.
Delinquencies have hardly budged.
It appears that the system is coping just fine. Of course, this does not mean that everyone is.
Despite the positive picture, we are by no means out of the woods.
Most Aussie borrowers who fix their mortgage do so for three years or less.
This means 85 per cent of pandemic-era fixed-rate loans are set to expire by the end of 2024.
As you can see in the graph below, we’re only half-way through the roll-off.
We are at the peak and will remain here into year-end.
The true test of the Australian residential mortgage resilience will only come if significant increases in unemployment collide with repayment stress.
For now, the path to expected higher unemployment is due more to immigration lifting labour supply above demand.
Importantly though, this does not mean people losing their jobs.
For some, the stress is and will be very real.
But for the system, higher rates will be more of a speed bump than a cliff.
What does this mean for investors?
Perhaps, the RBA may yet achieve the narrow path they set out on.
Find out about
Pendal’s Income and Fixed Interest funds
About Anna Hong and Pendal’s Income and Fixed Interest team
Anna Hong is an assistant portfolio manager with Pendal’s Income and Fixed Interest team.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
With the goal of building the most defensive line of funds in Australia, the team oversees some $20 billion invested across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at August 23, 2023. PFSL is the responsible entity and issuer of units in the Pendal Monthly Income Plus Fund (ARSN: 137 707 996) and Pendal Dynamic Income Fund (ARSN: 622 750 734) (Funds). A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com.
The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs.
This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards.
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