Mortgage arrears continue falling

by Miklos Bolza17 Nov 2017
Levels of mortgage arrears have decreased for the second month running, falling in August and September after increasing briefly in July.

These latest trends come from S&P Global Ratings’ latest monthly report, RMBS Arrears Statistics: Australia, which found arrears for Australian prime residential mortgage-backed securities (RMBS) dropped to 1.08% in September from 1.10% the month before.

This follows annual trends which have seen arrears fall in both August and September for the past five years. While the average for the past decade is 1.25%, the monthly average for September is lower than this at 1.15%.

S&P analysts said that improvements in employment conditions and low interest rates have kept a lid on arrears during 2017.

“While rates have been raised on riskier loan products to bring lending growth in line with regulatory limits, the impact on Australian RMBS transactions has been somewhat muted because most loans underlying transactions are variable-rate amortising loans to owner-occupiers.”

More positive economic settings have seen arrears declining in most states and territories, the analysts said.

“While some of this is seasonal – mortgage arrears traditionally start to increase in November and continue through to March – we have observed improvements in parts of the country where arrears have been at more elevated levels for some time.”

For instance, arrears in Western Australia have dropped from 2.33% in January to 2.21% in September while those in Queensland fell from 1.65% to 1.47% in the same time period.

Furthermore, the outstanding balance of loans greater than 30 days and less than 60 days in arrears also declined in most states and territories at this time. This shows that a smaller number of loans are falling into difficulty, analysts said.

“However, there was an increase in home loans more than 90 days past due in Western Australia and Queensland during the same period, and the proportion of loans migrating from the 60-90 days arrears category to being more than 90 days in arrears is higher in these states than in any other part of the country.”

These trends have affected borrowers’ ability to refinance and self-manage their loan difficulties, the analysts said.

S&P predicts that mortgage arrears will remain relatively stable in 2018 thanks to a predicted improvement in unemployment rate.

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