Australia’s mortgage market is proving resilient as consumers weather economic uncertainty. Perpetual’s Thomas Choi explains.
- Low default and write off rates
- Borrowers prioritising mortgage payments
- Find out about Perpetual’s Credit and Fixed Income capabilities
Australia’s mortgage market continues to demonstrate resilience despite economic uncertainty, supported by borrower discipline in keeping up repayments and conservative lending standards, says Perpetual’s Thomas Choi.
That strength is underpinning the strong performance of residential mortgage-backed securities, which are delivering attractive returns for investors seeking stable income.
With interest rates falling and equity valuations looking stretched, RMBS offer investors an important alternative source of defensive income, says Choi, a senior portfolio manager in Perpetual’s Credit & Fixed Income Team.
“Australians are more likely to cut back on everything else before falling behind on their mortgage,” he says.
RMBS investments form part of the Perpetual Credit Income Trust (ASX:PCI) and other Perpetual credit and fixed-income funds.
Low default rates
Australia’s largest lender, the Commonwealth Bank of Australia, recently posted a home-loan write-off rate representing less than half a basis point of its total mortgage book.
Write-offs occur when borrowers default and the bank is unable to recover its money.
Such a low write-off rate indicates a combination of strong borrowers, conservative lending standards and solid home price performance.
“The write off rate was so low, CBA rounded it to zero in the annual report,” says Choi.
“That is despite cost-of-living pressures, sub-trend economic growth, and a per capita recession. Even then, home loan mortgages performed extremely well.”
Improving outlook
Choi says conditions for Australian borrowers look set to improve over the coming year as interest rates fall and consumer confidence strengthens.
“The outlook is still uncertain, but recent domestic data gives some reason for optimism,” he says.
“Three rate cuts have lifted consumer sentiment materially – and markets are pricing in two more cuts by March next year.
“The August consumer sentiment survey was the strongest since March 2022 and is now just below its long-run average going back to 1974 – it’s been quite a quick recovery”.
“The ‘time to buy a dwelling’ index has rebounded to its highest level since 2021.
“And the house price expectations index is also elevated – up 23 per cent since the start of the year and at the highest since 2013.
“All of this is positive for the mortgage market.”
House prices
Still, rising house prices are not a key determinant of mortgage performance.
Choi says what matters is whether borrowers can continue to service their loans.
“Averages can be deceptive, but Australia’s employment conditions look strong compared to Europe or the US,” he says.
And while headline macro-economic data like unemployment looks clearly better - there are also important indicators coming from recent company reports.
“Earnings from both retailers and their landlords are showing some strong discretionary spending data from specialty stores like jewellery and leisure.
“It’s wise not to be overly optimistic, but the numbers show consumers are in pretty good shape.”
Warehouse lending adds yield
Choi says the portfolio’s warehouse lending – which provides lines of credit to allow non-bank lenders to originate mortgages – delivered a 9.4 per cent yield in the 12 months to July 2025.
“That’s 5.1 per cent above the cash rate – a strong return, even though it’s slightly lower than our historic average in private warehouse lending. Today’s portfolio is deliberately positioned for greater resilience, with stronger collateral and more robust counterparties,” he says.
Perpetual ranks among the longest-standing participants in Australia’s RMBS market, with eight years of direct lending expertise in warehouse financing and over two decades in public securitisation. Over that eight-year period, the outperformance to the index has been 5.76%.
About Thomas Choi and Perpetual’s Credit and Fixed Income team
Thomas is a senior portfolio manager with Perpetual’s respected Credit & Fixed Income team.
He focuses on the management of the treasury portfolios.
Thomas has more than 20 years of investing experience and has worked with us since 2010. He has a Bachelor of Economics from Sydney University and is a Chartered Financial Analyst.
Perpetual offers a range of cash, credit and fixed-income solutions. We are specialists in investing in quality debt.
We take a highly active approach to buying and selling credit and fixed income securities and invest extensively across industries, maturities and the capital structure.
Find out more about Perpetual’s Credit and Fixed Income capabilities
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