RMBS market looking sound for 2015: Fitch

In a report published yesterday, Fitch Ratings said it expected the ratings and asset performance of Asia-Pacific structured finance transactions - a sector dominated by Australian transactions - to remain stable over the course of 2015.

The agency added that an expected "marginal" rise in the unemployment rate to 6.2 per cent from 6 per cent, coupled with a slight slowing of economic growth to 2.9 per cent in 2015, was not likely to lead to any dramatic change in delinquency levels and therefore no rating changes were likely.

The agency expects Australian interest rates to remain flat at 2.50 per cent in 2015, in line with the most recent minutes from the Reserve Bank of Australia.

"Any minor move in rates is not likely to have a significant impact on the performance of underlying loans," the agency said.

Residential property prices throughout Australia have continued to rise strongly, particularly in Sydney (where house prices rose 13.1 per cent over the year to October 2014 to new peak levels) and Melbourne (where values rose 8.9 per cent). Fitch believes these price rises are unsustainable and it expects price rises to decelerate during 2015.

The agency said it "continues to apply market value declines ranging from 29.4 per cent to 53.9 per cent depending on property type, location and stress scenario."

Lenders' mortgage insurance remains a feature of the Australian RMBS market. Fitch expects the use of LMI in Australian RMBS transactions to decline in 2015, compared with earlier vintages, and this has been apparent through 2014.

"The decline is the result of a convergence of factors including the lack of capital relief for LMI-insured loans obtained by banks using the advanced approach under Basel III, coupled with the falling credit given to insurers by various market participants," Fitch said.