Mortgage arrears increased across Australia in the June quarter, driven by conditions in regional markets.
According to Standard & Poor's Performance Index (SPIN), the global credit rating agency claims that prime Australian residential mortgage-backed securities (RMBS) transactions more than 30 days in arrears increased to 1.19% over the three months to June, up from 1.13%.
Standard & Poor’s’ data shows regional areas have been hit hardest by the increase in arrears. The past eight months have seen arrears in non-metropolitan markets increase from 1.24% to 1.77%, which the rating agency says reflects the greater vulnerability of regional areas to downturns in key industries or employers.
Though arrears increased nationally over the June quarter, Standard & Poor’s believe conditions will likely improve as 2016 rolls on.
“While prime arrears are up year on year, they are still below their peak of 1.69% and decade-long average of 1.25%. Furthermore, arrears generally start to drift lower in the second half of the year so we expect that arrears are likely to remain at these low levels in most parts of the country over the next quarter,” Standard & Poor’s said in a statement.
“The rate cut by the Reserve Bank of Australia in August will also help. Lower wage growth and higher household indebtedness are no doubt creating a degree of mortgage stress for some borrowers but we expect that relatively stable employment conditions and historically low interest rates will enable the majority of borrowers underlying RMBS transactions to stay on top of their mortgage repayments,” the statement said.
On a state-by-state basis, the data shows arrears increased in all states and territories over the June quarter, except for New South Wales where they remained unchanged.
Over the three-month period, Western Australia was home to the highest level of arrears at 1.95%, followed by Tasmania (1.62%) and South Australia (1.56%). The continued slowdown of the mining boom is identified as the reason behind conditions in Western Australia, while high unemployment is contributing to conditions in South Australia and Tasmania.
Five of Australia's 10 worst-performing postcodes in terms of arrears were in Queensland in the June quarter, up from three in the March quarter.