Mortgage arrears fall in November

The ratings agency has reported that prime residential mortgage-backed securities (RMBS) fell by 4 basis points from 1.04 per cent in October to 1.00 per cent in November.

S&P’s RMBS Arrears Statistics: Australia report has partly attributed the drop to a “continuous rise in outstanding loan balances” in November, which totalled $129.1 billion.

S&P noted that the decline was “typical” of trends seen in the latter months of the year, brought about by a “cyclical increase” in the first quarter as a result of high consumer spending over the holiday period.

Further, New South Wales and Victoria make up 54 per cent of the RMBS portfolio, with both states experiencing the lowest level of arrears in two years, with arrears in NSW falling to 0.74 per cent while those in Victoria dropping to 0.90 per cent.

The decline was most prevalent in Western Australia, where arrears dropped by 12 basis points from 2.12 per cent to 2.00 per cent.

Meanwhile, the Australian Capital Territory (ACT) has continued to record the country’s lowest arrears level, at 0.56 per cent.

S&P expects the Australian RMBS market to stabilise in 2018 as a result of its forecast of “stable and improving employment conditions” and continually low interest rates.

Echoing broader industry concerns, the ratings agency highlighted Australia’s high household indebtedness, which it believes could leave borrowers vulnerable to a change in economic conditions.

However, S&P does not expect arrears to significantly rise above current levels if “benign economic conditions” continue.

S&P also reported that non-conforming RMBS arrears also fell in November, reaching a “near-historic low” of 3.44 per cent, which it believes was caused by an increase in outstanding mortgage balances during the month that totalled $4.75 billion. The non-conforming RMBS portfolio experienced a year-on-year increase of 22 per cent leading to November 2017. 

[Related: Home loan arrears continue to decline]