Australian mortgage arrears are at their lowest in 11 years

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Australian residential mortgage arrears have reached their lowest in 11 years.

Fitch Ratings says its Dinkum Index tracking the performance of loans hit 0.95% in the December quarter, a fall of 20 basis points compared to a year ago.

The level reflected strong house price growth, low unemployment, low interest rates and low inflation.

However, delinquencies may have found their lowest point with Moody’s Investors Service expecting a small rise this year with arrears highest in the states more dependent on resources — Western Australia, the Northern Territory and parts of Queensland.

Australian banks have started tightening the rules for home loans as they start to adjust for slower price growth in the housing market.

Fitch says losses from mortgages are likely to remain limited despite the likely slowdown in property price growth because of tighter serviceability assessments recommended by APRA (Australian Prudential Regulation Authority).

“The introduction of measures, such as interest-rate floors, means borrowers should have more buffers to withstand increases in interest rates and unemployment, and a slowdown in the housing market,” Fitch says.

This chart shows the fall in home loans 90 or more days in arrears: