RMBS Markets in Australia 2024
The Australian Residential Mortgage-Backed Securities (RMBS) market has been a vital component of the country’s financial landscape, particularly in providing funding for residential mortgages. In 2024, the prime RMBS arrears have remained relatively low, reflecting the overall health of the Australian housing market and the creditworthiness of borrowers. Despite economic uncertainties and rising interest rates, the prime RMBS sector has shown resilience, with arrears rates staying below long-term averages. This stability can be attributed to stringent lending standards and robust credit assessment processes implemented by lenders.
The size of the RMBS issuing market in Australia has seen significant activity in recent years, with 2024 continuing this trend. Issuance volumes have been strong, driven by both bank and non-bank lenders seeking to tap into investor demand for high-quality, asset-backed securities. The Australian RMBS market has attracted a diverse range of investors, including domestic superannuation funds and international institutional investors, drawn by the relatively high yields and solid credit performance. The market has become increasingly sophisticated, with issuers offering a variety of structures to meet investor preferences.
Investor trends in the Australian RMBS market have evolved, with a growing appetite for both prime and non-conforming RMBS. Prime RMBS, backed by high-quality residential mortgages, remains the cornerstone of the market, offering investors stable returns with low default risk. However, there has been a noticeable increase in interest in non-conforming RMBS, which cater to borrowers with less conventional credit profiles. These securities offer higher yields, appealing to investors willing to take on additional risk. This diversification within the RMBS market has provided more options for investors and helped deepen the market.
The nature of the residential housing market in Australia plays a crucial role in shaping the RMBS market. The housing market has experienced substantial growth over the past decade, characterized by rising property prices and strong demand, particularly in major cities like Sydney and Melbourne. This growth has been underpinned by favorable economic conditions, population growth, and a stable employment environment. However, affordability issues and regulatory measures to cool the market have led to some moderation in recent years. Despite these challenges, the underlying demand for housing remains robust, supporting the continued issuance and performance of RMBS.
One notable development in the Australian RMBS market has been the rise of the non-bank finance sector. Non-bank lenders have gained significant market share, driven by their ability to offer more flexible lending solutions compared to traditional banks. These lenders have been particularly active in the RMBS market, using securitization as a key funding mechanism. The growth of non-bank finance has introduced greater competition and innovation in the mortgage market, providing borrowers with more options and contributing to the overall dynamism of the RMBS market. The presence of non-bank lenders has also been instrumental in catering to segments of the market underserved by traditional banks, such as self-employed individuals and those with complex income structures.
