Mortgage delinquency rates have tripled for new loans in 2022 compared to the year before, according to a recent study by Bankwest’s research partner, showing the impact of steep rate hikes on new borrowers.
Released by the Bankwest Curtin Economics Centre at Curtin University (BCEC), the research suggests that new borrowers are facing mortgage stress not felt by homebuyers in previous years.
Report co-author and BCEC director Professor Alan Duncan (pictured above) said that mortgage brokers had a “strong role to play” in helping clients avoid defaulting on their loans.
“What is immediately apparent from this analysis is the higher mortgage delinquency rates for 2022 vintage loans starting at around six months since loan establishment,” said Duncan.
The rate of delinquency – defined as mortgage holders who are behind in payments by three months or more – has risen to 1.26% of the current loan balances for this group of borrowers.
This is around 4.7 times the average delinquency rate for the 2020 and 2021 cohorts at the same period since the loan was established.
“This comparison exemplifies the risks and pressures that new mortgage holders have experienced during 2022 and will continue to face over the course of 2023 as they move from current fixed rate mortgages to new loan products,” Duncan said.
Duncan said mortgage delinquency rates were particularly high among Western Australian borrowers signed up to Key Start – the state government initiative that allowed borrowers to enter mortgage agreements with as little as 2% deposit.
With spending by Western Australians stalled for the third consecutive month due to cost-of-living pressures, according to Bankwest’s latest Spend Trends analysis, the stress on these homebuyers with low equity could be too much to bear.
“What brokers can draw from this is the understanding that this cohort of new young borrowers are at a heightened risk of either delinquency or a propensity to get behind with mortgage repayments,” Duncan said.
With this evidence in mind, Duncan said it was imperative that brokers focused on improving the financial literacy of their client and supported them in the discipline required to service their mortgage payments.
“Guidance is particularly the case for those who have committed to homeownership for the first time during the past two years, and who have never previously experienced a period of rising interest rates.”
Aside from delinquency rates, the BCEC’s Housing Affordability in Western Australia 2023: Building for the future report also revealed the extent to which housing affordability in WA has deteriorated in the last two years.
The findings suggest that the low supply and lack of new builds in the state has pushed prices up in over the last couple of years making it difficult for first homebuyers and renters.
Despite this, Perth remains one of the most affordable cities in Australia with a median value of $580,000 in May, according to CoreLogic – an alluring offer for interstate property buyers.
This coincides with the latest Hotspotting Price Predictor Index figures, which show Perth is the place to be for investors and homebuyers.
Hotspotting general manager Tim Graham said rising sales activity was the cornerstone of the strong Perth market – now the star performer around the nation.
“Perth and Regional WA have continued to deliver more areas with rising sales activity than anywhere else in the nation, while Adelaide and regional South Australia are characterised by highly consistent buyer demand, rather than rising sales activity,” Graham said.
“Currently, there are areas across Australia where sales activity is weak, but prices remain strong – because there is a shortage of listings of properties for sale.”
Duncan urges brokers to abide by strict serviceability buffers to ensure mortgage holders can repay their loan.
“It’s all about giving them that financial education, being realistic and setting expectations … It’s about making sure the decisions are in their best interest,” he said.
With Bankwest and the BCEC celebrating their decade-long partnership last year, the two organisations hope to further add further insights to the financial services sector for years to come.
“While we (the BCEC) are independent of Bankwest, the bank relies deeply on the research we conduct and we depend on them for their support and collaboration,” said Duncan.
