Value of mortgages in arrears falls by $30m

The percentage of Australian households in arrears has held at 1.21 per cent for the second month in a row, but the dollar value of the delinquencies has plunged, S&P reveals.

In spite of languishing wage growth and household income-to-debt ratios hovering around 190 per cent, the percentage of home loans in arrears has stuck at 1.21 per cent for both April and May, Standard and Poor’s Performance Index (SPIN) reports.

The rate of arrears is currently sitting 0.9 per cent below the 10-year average of 1.30 per cent.

However, while the percentage of loans in arrears remained stable in May, the dollar value of the amount dropped by around $30 million, reflecting a month-on-month drop in dollar value of two per cent.

S&P also noted that the steady delinquency rate reflected a break from trend; in the April to May period in 2015 and 2016 the rate of loans in arrears rose. Prior to 2015 however, delinquency rates were prone to fall in the April-May period.

South Australia saw the greatest drop in delinquency rates (-0.07 per cent); however their average is still well above the national 10-year average (1.30 per cent), sitting at 1.56 per cent.

Tasmania (-0.04 per cent to 1.22 per cent), the ACT (-0.03 per cent 0.62 per cent), NSW (-0.03 per cent to 0.88 per cent) and Victoria (-0.02 1.10 per cent) also saw drops in arrears.

The Northern Territory experienced a 0.21 per cent surge in delinquency rates, bringing the rate to 1.91 per cent while Queensland saw delinquency rates grow by 0.06 per cent to 1.72 per cent.

Rates in Western Australia bumped up by 0.05 per cent to 2.37 per cent – the highest in the country.

The ratings agency said: “Despite the pressures of lower wage growth and high household debt, mortgage arrears have remained relatively low, buffered by low interest rates. Stable employment conditions have also helped.”

Originators

The major banks saw their SPIN delinquency rate grow month-on-month from 1.08 per cent to 1.11 per cent, while regional banks’ rates of home loans in arrears stayed stable at 2.27 per cent, the highest delinquency rate out of all lender types.

Banks classed as “other” saw rates of loans in arrears drop from 1.14 per cent to 1.07 per cent. Non-bank financial institution rates of loans in arrears ticked up by 0.01 per cent, from 0.58 per cent to 0.59 per cent, while non-bank originators saw delinquency rates jump from 0.95 per cent to 0.97 per cent.

S&P noted: “A variety of lenders have announced interest rate rises in recent months, and this could put pressure on arrears in the coming months; however, we do not expect these movements to be material, based on our forecast of relatively stable employment conditions.”

The SPIN is calculated based on a weighted-average of arrears that are more than 30 days past due on residential mortgage loans.

[Related: Deloitte sees ‘storm clouds’ for NSW property market]

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Lucy Dean

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