Fitch Ratings’ ‘Fair Dinkum’ mortgage performance report for Q2 revealed prime arrears have decreased, while low docs and 90 day-plus arrears reached historic highs.
Delinquencies in the Australian prime RMBS sector decreased to 1.54%, from 1.6% in Q1.
Furthermore, the analyst expects arrears to continue to decrease in Q3 and Q4 due to recent RBA
“Lower interest rates should result in improved affordability for existing borrowers and thus to lower arrears levels,” it said.
However, self-employed borrowers, low doc loans and the 90 day-plus areas continue to cause headaches, although Fitch was keen to stress levels still remain low compared to international markets, particularly the UK and US.
“Delinquencies in the low-doc segment tend to be two, or two-and-a-half times [higher than] those of full-doc loans, but in the 12 months to end-June 2012 they were four-and-a-half times higher,” it said.
It did warn declining house prices remain a threat to the property market overall.
“A significant drop in house prices could negatively affect transactions, in terms of recovery rates and time,” it said.
“As house prices fall, eventual sales prices are more likely to be below the mortgage balance, leading to losses and claims under lenders’ mortgage insurance (LMI).”