Home owners in the flood ravaged suburbs of Queensland could struggle to repay their mortgages when the water begins to subside.
According to a recent report by Fitch Ratings, home owners could suffer an “affordability shock” due to an increase in expenses and loss of income.
"Borrowers who have been directly or indirectly affected by the flooding will likely experience some financial distress in terms of property damage, increased living expenses, and potential loss of income," Fitch associate director James Zanesi said.
"Queensland's floods might also temporarily reduce available income in selected mortgage-backed transactions depending on their exposure to the affected areas.”
Reports suggest that up to 40,000 properties may be affected by the floods, the majority of which will be located in Brisbane.
Assuming that the impacted areas are reflective of the Australian mortgage market, approximately half of properties are estimated to have a mortgage in place.
But even with this in mind, Mr Zanesi said it is too early to quantify the magnitude of the eventual affordability shock.
“Australia’s major banks have already announced payment holidays of up to three months in favour of affected households and increased credit availability or disaster relief packages. Special government disaster flood assistance grants and private help might offset the impact on such borrowers. Structural assistance grants and private insurance might also reduce the costs of property damage and further government help may be forthcoming, given the magnitude of the catastrophe,” he said.
“Borrowers affected by the flooding that have equity above their scheduled mortgage balance, may choose to draw down on their mortgage to meet clean-up and repair expenses and to make mortgage payments until their income returns to normal.”