90-day arrears hit record high in December

by Madison Utley21 Feb 2019

According to a recent report by S&P Global Ratings, Australian home loan arrears rose in December. The Standard & Poor's Performance Index (SPIN) for Australian prime mortgages increased from 1.33% in November to 1.38% the following month.

While arrears tend to rise near the end of the year due in large part to holiday spending, mortgages more than 90 days in arrears climbed to a record 0.75% in December. While five years ago only 39% of prime mortgage arrears were more than 90 days overdue, the figure has since risen to 55%.

The Northern Territory exhibited the largest hike in arrears, swelling from 2.40% in November to 2.77% in December. Western Australia was not far behind, however, with arrears at 2.73%. Over 60% of all loans in arrears in the territory are overdue by more than 90 days, up 19% from five years ago.

As 63% of the loans in Queensland are for properties in nonmetropolitan areas, the territory’s arrears rose significantly due to the drought conditions and recent flooding which are expected to continue to impact future months as well.

Mortgage arrears also rose in nonbank originators, with arrears climbing to 0.70% in December from 0.62% the month before. Loans 31-60 days in arrears saw the largest shift, which may be due to the higher proportion of less-seasoned loans offered by nonbank originators. Without time to establish a pattern of repayment, newer mortgages carry a higher exposure and are more sensitive to interest rate movements.

With tightening lending conditions and the ongoing effect felt from the release of the royal commission report, it seems likely that refinancing pressures will persist. Borrowers with weaker credit attributes will be among those most affected.

Tasmania proved the only exception to the nationwide trend in rising arrears, with a slight drop to 1.12% in December from 1.16% the previous month.