Some rather comforting if not sobering news for the Australian property market today.
Bloomburg reported that Fitch Ratings stress tests on Australian banks & mortgage insurers had indicated that a 40 percent tumble in Australian house prices and a home loan default rate of 8 percent would be “manageable”.
The three scenarios Fitch tested are:
- mild stress with mortgage defaults of 2.5 percent and a 20 percent drop in home prices;
- medium stress with 6 percent defaults and 30 percent decline in prices; and
- severe stress with 8 percent defaults and a 40 percent price slump
Fitch’s analysis suggests that:
- losses, even in the most severe scenario, are manageable.
- banks would see a maximum A$10 billion ($9.9 billion) of losses in the third year of a severe mortgage stress scenario and mortgage insurers would lose a little more than A$7 billion.
- banks’ loan-loss reserves and pre- provision, pre-tax profits are more than adequate
The findings are the preliminary results of a stress test announced last month in response to increased institutional scrutiny on the stablility of the Australian property market.
To read the full story click here