The mortgage arrears rate for Australian home owners is the highest it’s been in more than a year the latest Standard & Poor’s (S&P) Rating Services Mortgage Performance Index (SPIN) shows. That’s the fourth consecutive month in which arrears have risen and S&P said that the increase was across all loan types.
The SPIN is a measure of arrears in Australian residential mortgage-backed securities (RMBS)- effectively bonds issued by banks, and other lenders, in the Australian market – which are supported by the underlying cash flows of a pool of home loans. It’s not the whole market, but because of APRA rules around the performance of these securities they can be taken as representative of the entire Australian national home loan book.
So the good news is that only around 1.11% of prime RMBS were in arrears as of February 29, SPIN showed. That was up from 1.07% in January and well off the low of 0.91% in September last year.
S&P said that a large part of the result is seasonal.
“Some of the increase reflects a decline in outstanding loan balances, there is also a seasonal component at play,” S&P said noting that “arrears typically increase in January and February, reflecting the effects of Christmas spending, holidays, and January sale periods”.
S&P also said “Low doc” loans and non-conforming loans also rose to 4.55% and 4.91% respectively while by lender type the data showed that the rise was across all lenders.
“Regional banks recorded the highest arrears of all originator types, reaching 2.15% in February, up from 2.04% a month earlier. The nonbank financial institutions meanwhile recorded the lowest arrears of all originator types, at 0.76%, up from 0.75% in January”.
The uptick in regional bank loans no doubt reflects the mortgage stress highlighted by the Reserve Bank in its Financial Stability Review earlier this month.
The RBA said that while “overall stress in banks’ household loan portfolios remain low… an exception to this general theme is that regions heavily reliant on the mining sector have experienced large falls in housing prices and deteriorations in credit performance”.
Overall Australia still has very low arrears and Australian consumers have large mortgage offset buffers, as well as many borrowers being well ahead of scheduled payments. But the trend is your friend as they say. Or in this case maybe not.