By Chris Zappone
Credit ratings agency Fitch said today that while the full impact of the Queensland floods is impossible to gauge at this point, they are expected to have a negative impact on house prices, borrowers and banks.
Property damage may “temporarily or permanently affect” borrowers' ability to pay and could cause “lower than normal recovery rates for damaged properties”, the credit agency warned.
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Losses for banks could also mount if people can't fully repay loans. Fitch said lenders' mortgage insurance - insurance held by the banks themselves - does not cover flood damage."Borrowers who have been directly or indirectly affected by the flooding will likely experience some financial distress in terms of property damage, increased living expenses, and potential loss of income," said James Zanesi, associate director in Fitch's structured finance team.
Defaults on home loans may force Fitch to reconsider assumptions it made about recoveries on losses when it initially rated the mortgage-backed securities linked to Queensland's real estate, it said.
“Moreover, the market value for properties located in the flooded areas might now be permanently adjusted downwards due to future flooding risk," the agency said.
Queensland Premier Anna Bligh said yesterday 28,000 homes would need to be completely rebuilt following the floods, while many houses would be uninhabitable for weeks, months or even years. The median price of a Brisbane home fell 1 per cent in November, seasonally adjusted, to $432,900, according to RP Data.
Nationwide, house prices started to plateau last year as the Reserve Bank raised interest rates and commercial banks added additional increases of their own.
Brisbane Times
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