Australian Mortgage Stress and Delinquencies to Start Climbing, Helia CEO Says
SYDNEY–Australian mortgage stress and delinquencies will start to rise, even as the country’s cash rate is tipped to decline by the end of the year, Helia’s chief executive said.
The lenders mortgage insurer expects the Reserve Bank of Australia cash rate to fall to 3.85% by the end of 2024 from 4.35% currently, it said in its economic assumptions at the end of December.
But with economic forecasters expecting unemployment in Australia to rise in 2024 alongside a slowing in economic activity, Helia said it also anticipates more home-loan delinquencies in its portfolio.
“We are expecting claims will increase, and we’ve reserved for it,” Chief Executive Pauline Blight-Johnston told The Wall Street Journal on Tuesday.
“We feel well positioned that if that does eventuate, the business…has sufficient reserves to continue to, firstly, make good on all our promises, and secondly to continue to deliver to shareholders through that.”
The jobless rate rose to a two-year high of 4.1% in January from 3.9% in December while hours worked slumped, fueling bets in the market that interest-rate cuts will be delivered in the second half of this year. Helia on Tuesday said it forecasts a gradual increase in the unemployment rate to 4.6% by the end of 2024.
“With the interest-rate increases over the last few years, we see that the biggest determinant of our claims outcome is unemployment,” Blight-Johnston said.
Reflecting this, Helia’s claims experience in recent years has been benign, with the company reporting negative total incurred claims for 2023. That helped Helia deliver a net profit of 275.1 million Australian dollars (US$179.9 million) for the year, up 37% from 2022, Blight-Johnston said.
“That’s obviously a good thing for the business in the short term. It’s also a good thing for Australia. It means that Australians, whilst they are feeling pressure, are staying in their homes, which is a good outcome,” she said.
Looking ahead, however, Helia expects claims to be around 30% of the company’s premium on average, Blight-Johnston said, adding that it is unsustainable to continue reporting a negative incurred-claim ratio.
Still, subdued market conditions for new lending, especially for loans above an 80% loan-to-value ratio, have pressured Helia’s other key financial measures.
For the full year, gross written premiums fell 42% to A$185.2 million, and the company recorded a 35% decline in new insurance written to A$13 billion.
Insurance revenue suffered, falling 8.6% to A$427.3 million. For 2024, Helia said it expects insurance revenue to be within the A$360 million to A$440 million range.
Write to Alice Uribe at alice.uribe@wsj.com
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