Prime arrears improved in July

Increase in new lending to households could help stabilise owner-occupied arrears yet further

Prime arrears improved in July


By Madison Utley

Australian prime home-loan arrears charted a slight improvement in July, according to S&P Global Ratings.

The Standard & Poor's Performance Index (SPIN) for prime mortgages dropped from 1.51% in June to 1.49% in July.

Recent rises in housing finance approvals could help stabilise arrears and prepayment rates if the current momentum continues, as refinancing is a common way for borrowers to “self-manage their way out of arrears.”

Arrears are also expected to continue their decline as the recent rate cuts filter through.

However, it is likely the improvements will be seen only in the earlier arrears categories, which are more sensitive to interest-rate movements. Longer-dated arrears are likely to remain elevated in the “softer economic environment.”

The improvement evidenced in July was expected, as arrears typically fall at this point in the year and continue to decline during the third quarter due to seasonal considerations.

However, arrears were still 11bps higher as compared to July of last year, and also remained above their five-year average of 1.25%.

Arrears fell in all states and territories over July, except New South Wales and South Australia.

Western Australia recorded the largest fall in arrears during July, dropping 14bps to 2.91%. The bulk of the improvement was evidenced for loans 30-60 days in arrears, with those over 90 days in arrears continuing to increase.

While owner-occupier arrears fell by 3bps to 1.71% in July, investor arrears remained mostly unchanged, dipping just 1bps from the previous month – reflecting the “generally tighter lending conditions for investors” in the current environment.

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