Borrowers breathing easier as arrears fall

by Adam Smith13 Dec 2011

Borrowers are finally adjusting to last year's rate hikes, just as the Reserve begins easing the cash rate.

The Fitch Dinkum Index has suggested borrowers are finding it easier to meet their repayments. Arrears in the 30-plus day category have fallen for the second consecutive quarter, and Fitch structured finance analyst Courtney Miller said further falls are expected in the year ahead.

"The stable mortgage performance in Q311 reflects that households have adjusted to the payment stresses of Q410 and Q111. Mortgage performance is expected to continue its improvements in Q411, further assisted by the recent interest rate decreases in November 2011, with the December 2011 decrease having more of an impact in Q112," Miller said.

Thirty-plus day arrears fell 17bps over the quarter to 1.52%, while the proportion of borrowers more than 90 days behind saw a marginal improvement, down to 0.63% from 0.67% the previous quarter.

Low-doc borrowers continued to be the group most susceptible to running into repayment trouble. The ratio of mortgagors more than 90 days in arrears hit its highest peak since the inception of the Dinkum Index, reaching 2.87%. However, Fitch said the RBA's cash rate cuts presented hope for low-doc borrowers.

"Fitch continues to believe that low-doc borrowers captured in the Dinkum Index are more likely to be affected by monetary policy decisions. There is the expectation that these borrowers will benefit from the recent rate cuts in Q411 and from the general health of the Australian economy," the company said.