Rising arrears a call-to-action for brokers

by Madison Utley19 Jun 2019

Amidst a nation-wide rise in home loan arrears, brokers in hard-hit WA and Queensland are being urged to remain vigilant in helping struggling borrowers secure their financial footing.

The Standard & Poor's Performance Index (SPIN) for Australian prime mortgages rose to 1.53% in April, up from 1.51% the month before. Arrears were up 17bps year on year. The only region to evidence a decrease in arrears in April was the Australian Capital Territory, which fell 0.11%. Adding to the issue, the RBA has acknowledged that the negative trends may play out yet further.

Western Australia recorded the largest month-on-month increase, rising to 3.10%. However, according to Bianca Patterson, director of WA-based Calculated Lending, “This is not news to brokers in WA.”

She continued, “Changes were put in place to correct the rising Sydney and Melbourne markets with no real consideration of what they may do to the other less buoyant property markets in Australia. Many borrowers in WA – and other states – are struggling.”

“If the current lending environment does not change, this very likely means a further setback for the WA property market as more investors are forced to sell properties when the returns no longer make sense for them to continue to hold.

“With APRA removing the interest-only cap late last year and the current APRA proposal to revise its guidance on serviceability assessments, I hope lenders start to see the common-sense approach we have been calling for in WA for the last five years.”

While the Western Australian economy has begun to show slight signs of improvement, Patterson worries that home owners and investors who want to sell, but are in negative equity positions will be yanked further off track. 

“Not being able to sell or convert their loans back to interest-only leaves some borrowers with no other option than to fall into arrears,” she added.

Queensland also exhibited a significant month-on-month increase, rising to 1.94%. Together with WA, the two regions contain around 35% of loans in Australian residential mortgage-backed securities (RMBS) portfolios.

According to Tracy Kearey, MD of QLD-based Home Loan Connexion, the disquieting statistics contain a call-to-action for brokers.

“We should be reaching out to clients that do have interest-only or fixed rate loans that are about to expire so that we can make sure we get them into a product in which they can more easily make their repayments,” she said.

“Also, it’s crucial to monitor the client. If they miss a repayment on a home loan, contact them, find out what their situation is. Speak to their lender, their hardship team. Put a plan in place for the client to get them into a better financial condition.”

In a speech earlier this week, the RBA head of financial stability, Jonathan Kearns, listed weak income growth, falling housing prices, rising unemployment, and shifting lending standards as all contributing to the real possibility that “the arrears rate could continue to edge higher for a bit longer.”