Australian home loan arrears are starting to trend higher

RODGER BOSCH/AFP/Getty Images
  • Australian home loan arrears are low but are trending higher.
  • Arrears in prime RBMS securities stood at 1.33% in September, above the 1.17% average seen in August.
  • At a time of falling home prices in many parts of the country, the outlook for the jobs market will determine whether arrears levels stay low.

Home loan arrears are trending higher in Australia, although they still remain low by historical standards.

According to S&P Global Ratings latest RMBS Arrears Statistics report, delinquent housing loans within Australian prime residential mortgage-backed securities (RMBS) fell to 1.33% in September, down from 1.36% in August.

“The trend was consistent across all states and territories in September except Victoria, where loans more than 30 days in arrears increased to 1.18% from 1.16% in August,” S&P said.

“Western Australia in September retained the top spot for the highest mortgage arrears, at 2.56%, down from 2.60% the previous month.”

The group said arrears for both owner-occupier and investor loans fell during the month.

“Investor arrears decreased to 1.19% in September from 1.23% in August and owner-occupier arrears fell to 1.52% in September from 1.53% in August,” it said.

“During more benign economic conditions, investors have been more impervious to interest-rate rises than owner-occupiers, reflecting their generally higher net wealth position.”

Despite the modest improvement, S&P said arrears continue to sit at slightly higher levels compared to the levels seen in prior years.

“Arrears typically fall at this point in the annual cycle, though the current arrears level of 1.33% is above the 1.17% historical average for September,” it said.

“Arrears remain low overall, though.”

S&P Global Ratings

Whether that remains the case will come down to labour market conditions in the future, S&P said.

“Despite declining property prices, mortgage arrears across Australian RMBS portfolios are holding steady,” it said.

“This is in line with our expectations, given employment conditions are generally positive, interest rates are low, and lending competition remains strong for borrowers of good credit quality.”

Like so many other aspects to the Australian economy, the jobs market will play a key role in determining the credit quality of RMBS in the period ahead.

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