Arrears at five year high

by Miklos Bolza19 Sep 2017
The number of Australian residential mortgages that are more than 30 days in arrears has shot up to a five year high, according to Moody's Investors Service.

The ratings agency recorded a 30+ delinquency rate of 1.62% in May this year with record high rates in Western Australia, the Northern Territory and South Australia. Arrears were also up in Queensland and the Australian Capital Territory while levels decreased in New South Wales, Victoria and Tasmania.

“Weaker conditions in states reliant on the mining industry, high underemployment, and less favourable housing market and income dynamics will continue to drive delinquencies higher. Regions with exposure to the resource and mining sectors dominated the list of areas with the highest delinquencies in May 2017,” analysts said.

Eight of the 10 regions with the highest 30+ day delinquency rates were found in either Western Australia or Queensland and are locales indirectly or directly related to mining and resources.

“The ten regions with the lowest mortgage delinquencies in Australia in May 2017 were all in Sydney and Melbourne, where housing market and economic conditions were the most supportive for mortgage borrowers.”

Ratings agency Standard & Poor’s (S&P) Global Ratings also recorded an increase in the higher number of delinquent housing loans underlying Australian prime residential mortgage-backed securities (RMBS).

This rate rose from 1.15% in June to 1.17% in July according to the agency’s monthly report RMBS Arrears Statistics: Australia. This latest percentage was lower than the July average for the past decade, S&P analysts said.

Delinquent loans underlying the prime RMBS at the major banks made up almost half of all outstanding loans and increased from 1.08% to 1.11% from June to July. For the regional banks, this level rose from 2.30% to 2.35%.

Arrears for prime RMBS at non-bank financial institutions actually dropped from 0.49% to 0.47% over the month while non-bank originator RMBS arrears declined from 0.88% to 0.85%.

“The pronounced improvement in nonbank originator prime RMBS arrears since their peak of 2.99% in January 2009 reflects a general improvement in the overall collateral quality of this sector. This is evidenced by a fall in low documentation loans from 22% in December 2009 to 15% in June 2017 across their prime portfolios. Higher loan-to-value (LTV) ratio loans – ie, those exceeding 75% – in this sector have declined to 28% as of July 2017 from around 50% in 2009.”

Related stories:

New loans vulnerable to market shocks

Banks to face incoming mortgage headwinds

Competitive concerns behind risky lending: RBA

COMMENTS