Australia's overall mortgage dues might be decreasing but 90-day home loan defaults are getting wider

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A day after cutting the credit ratings of almost all Australian mortgage lenders except the major banks on looming housing risks, S&P Global Ratings said mortgages in default for over 90 days widened.

Mortgages more than 90 days in arrears, which have averaged around 0.50% for the past decade, were 0.62% in March, the ratings agency said.

“This trend partly reflects a greater alignment in hardship reporting in recent years,” it said.

The rise in such defaults clouds an otherwise improving scenario. The number of delinquent housing loans underlying the Australian prime residential mortgage-backed securities (RMBS) in March fell to 1.16% from 1.23% a month earlier though mortgages, S&P said.

Investors watch movements in souring mortgages closely to determine the health of the nation’s banks and housing market.

The reduction in overall dues was attributed in part to increased home loan balances, the ratings agency said. There was $1.66 trillion in outstanding mortgages as of March across Australia compared with $1.55 trillion, according to central bank data.

Australian households with close to record debt are getting squeezed if recent economic data is anything to go by. A combination of record-low wages growth, higher petrol and utilities prices and out-of-cycle mortgage rate increases has meant that household cashflow has slumped in early 2017, UBS economists said.

Mortgages 31-60 days past due improved in March with nonbank originators recording the largest improvement in mortgages more than 30 days in arrears, it said.

Arrears fell in New South Wales, Victoria, and Queensland, which collectively account for about 80% of total outstanding loan balances. New South Wales recorded the largest decrease, with loan arrears declining to 0.85% from 0.95%, against a backdrop of rising outstanding loan balances, S&P said.

The ratings agency on Monday cut the ratings of 23 Australian financial institutions including AMP, Bendigo and Adelaide and Bank of Queensland citing the risk of a sharp fall in property prices.

Mortgage lenders in Australia faced a surge in bad debts in the event of a sharp correction in property prices given household debt is already high, S&P said.

In the event of a sudden property market correction “all financial institutions operating in Australia are likely to incur significantly greater credit losses than present,” the credit ratings agency said in a statement Monday.

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