Australia’s central bank said on Monday that the risks posed by non-bank lenders to the mortgage-backed securities market were limited because the labor market remained flexible, supporting households and businesses, and the size of the sector remained generally small.
Speaking in Sydney on Monday, David Jacobs, head of the domestic markets division at the Reserve Bank of Australia, said that while there was potential for risks to build in the mortgage-backed securities market, there were limited signs of stress so far.
“The main point I want to stress is that the risks posed by non-bank lenders are currently somewhat limited due to the small size of the sector, limited connections to the rest of the financial system, and their funding coming primarily from sophisticated investors,” Jacobs said.
For example, he said the arrears rates on residential mortgage-backed securities are similar to those for mortgages offered by banks, adding that it is not clear that the relative risks of residential mortgage-backed securities have shifted significantly.
The Reserve Bank of Australia has kept interest rates at a 12-year high of 4.35% for a full year now, but the labor market has remained surprisingly strong, which is why markets are not fully priced in for a rate cut until May next year.
Mortgage arrears were on the rise, but were at historically low levels, the Reserve Bank of Australia said, adding that only a small portion of arrears were in negative equity and that the financial system remained resilient.
