Even before social distancing measures were introduced, introducing financial pressure and radically reshaping daily life, Australian prime home-loan arrears charted a rise in February according to S&P Global Ratings.
The Standard & Poor's Performance Index (SPIN) for Australian prime mortgages increased to 1.41% in February, up from 1.36% a month earlier.
While it’s not unusual for arrears to rise in February, reflecting the end of the summer holidays and post-Christmas spending period, the change was more pronounced in New South Wales, Queensland, and Victoria, due to the bushfires, drought, and decline in international tourism that followed the onset of the COVID-19 pandemic.
As social distancing measures were introduced in mid-March, the effect on mortgage arrears won’t be reflected until future reporting periods; according to S&P, the true effect won’t be seen until at least the third quarter of 2020, as lenders aren’t required to report loans under COVID-19 holiday arrangements as being in arrears during the defined mortgage-relief period.
Based on initial data provided by select lenders, around 3% to 7% of loans in securitised trusts are under COVID-19 hardship arrangements, with the number expected to increase in the coming months.
Further, the forecasted significant increase in unemployment for 2020 could lead to rises in arrears and defaults in the next 12-18 months as well, albeit from the low levels at which they’ve been hovering.
S&P Global Ratings highlighted the “high degree of uncertainty” that surrounds the coronavirus outbreak, but are operating under the assumption the pandemic will peak midyear in its assessments of the economic and credit implications.
The SPIN measures the weighted-average of arrears more than 30 days past due on residential mortgage loans in publicly and privately rated Australian RMBS transactions for both prime and nonconforming residential mortgage loans on a monthly basis. The indices identify the proportion of loans 31-60 days, 61-90 days, and 90-plus days in arrears.