Mortgage arrears remained stable among prime borrowers in Q1 2013, helped in part by low interest rates, according to the latest Fitch Dinkum Index - despite a slight increase.
Fitch records a 2 basis point rise in prime mortgages more than 30 days in arrears rising from 1.46% in the December quarter of last year to 1.48% in the first quarter of 2013. Loans between 30-59 days arrears were at 0.59%, up from 0.55% in the December quarter, making it the lowest post-Christmas level since March 2006.
The increase was softened somewhat by a low mortgage interest rate environment and the inclusion of six new transactions to the Index, with the 30-59 days arrears recording the lowest post-Christmas level record since March 2006 at 0.59%. The RBA’s decision to cut the cash rate in May is expected to benefit performance over the coming quarters.
Self-employed borrowers continued to experience stress, despite the low interest rate environment, with the Dinkum Low-Doc Index deteriorating to 7.57% in Q113, up from 7.05% in Q412. Low-doc borrowers have historically taken longer to adjust their spending and cure their delinquency status given the sector’s lumpy nature of cash flow.
Low levels of unemployment, coupled with continued low mortgage interest rates and strong GDP are expected to provide a stable macro-environment, with mortgage arrears levels remaining in line with those of 2012.
Australian delinquency rates continue to remain low relative to other countries and are well within Fitch’s expectations used to derive its ratings for Australian RMBS transactions.