Mixed arrears data reported in February

Standard & Poor’s (S&P) has released its latest mortgage arrears data, reporting that over 30-day delinquencies underlying Australia’s prime residential mortgage-backed securities (RMBS) increased from 1.45 per cent to 1.47 per cent nationwide in February.

However, the result valued on a state-by-state basis, with arrears rising in Victoria (5bps), NSW (4bps), Queensland (3bps), the ACT (2bps), and the Northern Territory (2bps).

In contrast, delinquencies underlying RMBS portfolios declined in South Australia (9bps), Western Australia (4bps), and Tasmania (3bps).

The overall arrears rate remains highest in the Northern Territory (3.17 per cent), followed by Western Australia (2.91 per cent), Queensland (1.84 per cent), South Australia (1.59 per cent), Victoria (1.39 per cent), NSW (1.24 per cent), the ACT (1.20 per cent) and Tasmania (1.06 per cent).

Arrears were highest among loans originated by major banks (1.79 per cent) and regional banks (2.72 per cent), which, according to S&P, partly reflected “geographic factors and seasoning levels”, with such lenders more highly exposed to loans over 90 days in arrears across locations affected by the mining downturn.

Non-bank lenders, on the other hand, reported the lowest arrears rate (0.48 per cent), with S&P stating that the non-bank sector “consistently outperformed all other sectors for a number of years”.

The statistics also reported a rise in non-conforming mortgage arrears, which increased from 3.91 per cent in January to 3.95 per cent.

S&P expects overall arrears pressures to persist amid tighter lending conditions, the uncertain economic environment, and high household indebtedness.

“We expect refinancing pressures to continue in the current environment of tightened lending conditions,” the ratings agency stated.

“High household indebtedness increases borrowers’ sensitivity to changing economic conditions and interest rate movements.

“This vulnerability is greater for borrowers with weaker credit attributes, such as those with high loan-to-value ratio loans.”

S&P concluded: “Exposure to loans with higher credit risk is not material in most RMBS portfolios and is unlikely to put any significant pressure on arrears in the short to medium term while employment conditions remain stable.”

[Related: Mortgage interest income to remain under pressure this year]