Australian home loan arrears continue to increase

Darren Michaels/ CBS via IMDb.2 Broke Girls.
  • More Australians are falling behind on their home loan repayments, but overall arrears levels remain low.
  • S&P says tighter lending standards will add to refinancing pressures for borrowers.
  • The group expects arrears levels to remain low as long as labour market conditions remain firm.

Australian home loan arrears rose again in February, hitting the highest level in seven years.

According to S&P Global Ratings latest RMBS Arrears Statistics report, arrears in Australian prime residential mortgage-backed securities (RMBS) rose to 1.47% during the month, up 0.02% from January.

S&P

By length of arrears, the proportion of loans 61 to 90 days and 90 days overdue both increased, lifting to 0.27% and 0.78% respectively. The proportion of loans 31 to 60 days past due eased marginally to 0.42%, down 0.1 percentage points from January.

“Loans that are more than 90 days in arrears make up a larger proportion of total arrears in these portfolios, partly reflecting geographic factors and seasoning levels,” S&P said.

From January, arrears rose in the New South Wales, Victoria, and Queensland, Australia’s most populous states where most home loans are originated, overriding declines in Western Australia, South Australia and Tasmania during the month.

S&P said the national increase in February was within its expectations at this point in the arrears cycle.

Looking ahead, S&P said tighter lending standards, especially towards household expenses and existing debt levels, will add to refinancing pressures for borrowers.

“High household indebtedness increases borrowers’ sensitivity to changing economic conditions and interest-rate movements,” it said. “This vulnerability is greater for borrowers with weaker credit attributes, such as those with high loan-to-value ratio loans.”

While that may lead to higher arrears levels in the period ahead, S&P said any increase was likely to be modest in nature, as long as job market conditions remain firm.

In a speech earlier this month, RBA Deputy Governor Guy Debelle said the labour market, like so many other parts of the Australian economy, will play a key role in determining the outlook for arrears and home prices.

“The critical factor in the future evolution of both arrears and negative equity is whether the household with the mortgage has an income and a job,” he said.

“Forward-looking indicators of labour demand suggest future employment growth will remain solid.”

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