New research has revealed that the number of home loans in arrears in regional Australia is outstripping those in the country’s cities.
According to Standard & Poor’s (S&P), while arrears increased in all states and territories except New South Wales during the second quarter of 2016, the increase was most acutely felt in non-metropolitan areas, where arrears have increased to 1.77 per cent from 1.24 per cent over the past eight months.
S&P said that the trend reflects the greater vulnerability of regional areas to downturns in key industries or employment.
Western Australia recorded the highest arrears at 1.95 per cent, followed by Tasmania (1.62 per cent) and South Australia (1.56 per cent).
S&P explained: “The higher arrears in these states reflects, in part, the tougher economic conditions in these areas as evidenced by higher unemployment in South Australia and Tasmania.
“In the case of Western Australia, it reflects the ongoing impact of the slowdown in mining investment.”
However, S&P highlighted that while prime arrears are up year-on-year, they are still below their peak of 1.69 per cent and decade-long average of 1.25 per cent.
“Arrears generally start to drift lower in the second half of the year so we expect that arrears are likely to remain at low levels in most parts of the country over the next quarter,” it said, adding, “the rate cut by the Reserve Bank of Australia in August will also help.”
“Lower wage growth and higher household indebtedness are no doubt creating a degree of mortgage stress for some borrowers but we expect that relatively stable employment conditions and historically low interest rates will enable the majority of borrowers underlying RMBS transactions to stay on top of their mortgage repayments.”
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