More Australians are falling behind on their mortgage repayments – but there's a reason why

William West/AFP/Getty Images Overspending at Christmas often sees arrears lift at the start of the year.
  • More Australians fell behind on their home loan repayments in January.
  • Higher arrears levels are often seen at the start of the year, reflecting overspending around Christmas and the fact that many Australians are on holidays.
  • More broadly, arrears are drifting higher, partially in response to some borrowers being forced to switch from interest-only to amortising loan repayments.
  • While Australian household income growth is slow, unemployment sits at an 8-year low. That’s providing some offset to declines in home prices, at least for the moment.

More Australians fell behind on their home loan repayments at the start of the year, driven by both owner-occupier and investor borrowers.

According to S&P Global Ratings latest RMBS Arrears Statistics report, delinquent housing loans contained in Australian prime residential mortgage-backed securities (RMBS) rose to 1.45% in January, up from 1.38% a month earlier.


S&P said investor loans recorded a larger increase in arrears than owner-occupier loans, rising to 1.40% in January from 1.27% a month earlier. Owner-occupier arrears, while higher as proportion, rose by a smaller 0.09 percentage points to 1.69%.

The percentage reflects the proportion of loans in RMBS facilities that are more than 30 behind payment.

S&P said the increase was not all that unusual, noting total arrears levels often peak at the start of every year.

“January is typically the peak of the arrears cycle, reflecting the after-effects of Christmas and summer holiday spending. The magnitude of the increase at this point in the arrears cycle is lower than in previous years,” it said in a statement.

More broadly, S&P also noted the increase could reflect the impact of some borrowers being forced to switch to amorthising rather than interest-only repayments as a result of previous restrictions on interest-only loans introduced by Australia’s banking regulator, APRA.

“The increases might reflect the ongoing transition from interest-only to principal-and-interest repayments, which is more common for investor loans,” it said.

Fitting with the seasonal pattern of an increase in arrears in January, S&P said higher rates were recorded in all states and territories except for Tasmania during the month.

“The rise in mortgage arrears was consistent nationwide, with the exception of Tasmania, where arrears fell to 1.10% in January from 1.12% the previous month,” it said.

“The Northern Territory recorded the largest increase in mortgage arrears in January, reaching 3.16%, up from 2.77% in December.”

This map from S&P shows the change in arrears levels seen across the country during the month.


By length of arrears, increases were also seen across 30 to 60 days, 61 to 90 days and 90 days plus, lifting to 0.43%, 0.25% and 0.77% respectively from December.

Looking ahead, S&P said it expects “refinancing pressures to continue in the current environment of tightened lending conditions”.

“Refinancing conditions are likely to remain tough for loans in Queensland, Western Australia, and South Australia, particularly in regional areas,” it said. “We expect arrears in these portfolios to remain elevated for some time.”

While home prices are now falling in many parts of the country, including in most capital cities, firm job market conditions are continuing to provide some offset to borrowers, at least for the moment.

Some expect that the slowdown in the economy may lead to weaker hiring and a potential uplift in unemployment. While that could pressure some marginal borrowers, any weakening in the labour market will likely prompt the Reserve Bank of Australia to cut official interest rates again, helping to lower repayments for those borrowers with variable mortgage rates.

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