Latest NewsHome Borrowers Can Handle Rate Hikes: Moody'sThursday, 29 December 2016

Rating agency Moody's Investors Service says the Australian residential mortgage backed securities (RMBS) market is strong enough to withstand rising interest rates, with the Reserve Bank of Australia's (RBA's) latest hike unlikely to spur a rush of delinquencies or downgrades.

In its latest report - released after the RBA raised the official cash rate by 25 basis points to 4.25 per cent - Moody's vice president and senior analyst Arthur Karabatsos said most borrowers should be able to absorb higher rates.

He added that most borrowers have already shown they can cope with their mortgage payments as rates tick up to normal levels.

"The neutral setting is believed to be around 5 per cent, if official interest rates rise a further 0.75 percentage points to this level, delinquencies in the Australian RMBS sector are unlikely to significantly increase," Mr Karabatsos said.

The five per cent neutral setting would still be 2.25 percentage points below the 7.25 per cent reached 18 months ago in March 2008, the report said.

The 2.25-percentage-point buffer means a monthly savings of $415 on a $300,000 mortgage, over 25 years, when compared to March 2008.

RBA governor Glenn Stevens said on Tuesday that the central bank was eager to bring rates closer to the average.

"The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," Mr Stevens said in a statement following the central bank's monthly board meeting.

On housing, Mr Stevens said that while new loan approvals had moderated over recent months - following last year's consecutive interest rate rises and the winding-back of the first homebuyers grant - the market remained strong.

"At this point the market for established dwellings is still characterised by considerable buoyancy, with prices continuing to increase in the early part of 2010," he said.

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