Mortgage arrears on the rise

Arrears climbing from lows

Mortgage arrears on the rise


By Mina Martin

Mortgage arrears have risen from their COVID lows of 1% in Q3 2022 to 1.6% in March 2024, marking the highest reading since Q1 2021, according to Tim Lawless (pictured above), executive research director Asia Pacific at CoreLogic.

Impact of non-performing loans

The increase in arrears has been most influenced by non-performing loans, which have risen to 0.93%. A non-performing loan is at least 90 days past due or expected to not collect the full amount due.

“The non-performing arrears rate is now slightly higher than it was at the onset of COVID,” Lawless said.

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Rising interest rates and costs

A key factor in higher mortgage arrears is the sharp rise in the cost of debt. With average variable interest rates on home loans increasing from 2.86% in April 2022 to 6.39% in March 2024, borrowers face significantly higher repayments.

“Cost of living pressures are consuming a larger portion of household income,” Lawless said.

Maintaining repayments amid challenges

Despite the rise in arrears, most borrowers have managed to stay on track with repayments by drawing down savings, working more hours, or contributing less to mortgage offsets.

“Most borrowers have kept on track with their home loan repayments,” Lawless said.

Future outlook

Mortgage arrears are likely to rise further as unemployment lifts and household savings deplete. However, a substantial blowout in arrears is unlikely unless labour markets weaken significantly more than forecast.

“Arrears are unlikely to experience a material ‘blow out’ unless labour markets weaken substantially more than forecast,” Lawless said.

Strong underwriting standards

Low mortgage arrears are also attributed to strong underwriting standards by Australian lenders and the prudential regulator, APRA. Borrower serviceability is assessed at a mortgage rate 3 percentage points higher than the loan product rate.

“Lending policies remain fairly cautious,” Lawless said.

For more details, visit the CoreLogic website.

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