New report highlights risk of mortgage defaults

The amount of income Sydney and Melbourne households are using to pay off their mortgage is rising, signalling a greater chance of mortgage defaults in the two capitals.

According to credit rating firm Moody’s, households with two income earners needed an average of 27 per cent of their wages to make home loan repayments as of 31 March 2015 – unchanged from the previous year.

However, the situation deteriorated in both Sydney and Melbourne.

Sydney households needed 35.1 per cent of their wages to pay their mortgages, compared to 32.8 per cent the year before. Melbourne went from 27.5 per cent to 28.2 per cent.

“Less-affordable mortgages increase the risk of delinquency and default, particularly if interest rates rise from their current low levels,” the report said.

“The larger loan sizes and repayment obligations of new mortgages in Sydney and Melbourne are especially problematic, since these mortgages are being underwritten at historically low interest rates.”

Meanwhile, affordability improved in both Perth and Brisbane, while remaining steady in Adelaide.

Perth’s rating changed from 24.6 per cent to 21.9 per cent and Brisbane’s rating changed from 24.4 per cent to 23.4 per cent, while Adelaide stayed at 22.1 per cent.

Moody’s research also found that while Australia’s national affordability measure of 27 per cent is lower than the 10-year average of 29.6 per cent, Sydney’s current affordability measure is higher than the 10-year average of 33.6 per cent.

[Related: Sydney prices forecast to grow only 3.4pc next year]

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