Westpac reports spike in mortgage delinquencies

Westpac has released its capital, funding and credit quality update for the third quarter of the 2019 financial year (3Q19), recording an increase in over 30-day delinquencies, over 90-day delinquencies and consumer properties in possession.

Over 30-day arrears increased by 15 bps, from 1.59 per cent in the previous quarter to 1.74 per cent, while over 90-day arrears spiked from 82 bps to 90 bps over the same period.  

The spike in arrears was more pronounced when compared to the same quarter last year, with Westpac’s over 30-day delinquencies rising by 30 bps from 1.44 per cent and its over 90-day arrears increasing by 18 bps from 72 bps in 3Q19.

The number of consumer properties in possession has also increased, rising from a total of 482 to a total of 550 over 3Q19, and from 392 when compared to 3Q18.  

According to Westpac, the rise in mortgage delinquencies reflected an “increase in stress and ongoing weak housing market activity”, which it said has caused existing over 90-day exposures to “remain in collections for longer”.

The major bank added that a change in the make-up of its portfolio also contributed to a spike in delinquencies, pointing to a greater proportion of P&I loans, which came off the back of its move to reduce its exposure to interest-only mortgages in response to regulatory requirements.

According to global ratings agency Moody’s, the upward trend in mortgage arrears is set to continue over the coming quarters.

Moody’s recently stated that it expects to see a “modest uptick” in delinquencies on residential mortgage-backed securities as a result of high levels of household debt, “moderating” house prices and the large number of interest-only home loans being converted to principal and interest loans by the end of 2020.

However, Moody’s analyst Jacqui Dredge noted that the impact will be “limited” due to “stable” GDP growth, low unemployment, and interest rate cuts made by a long line of lenders in response to the Reserve Bank’s back-to-back rate cuts.

 [Related: ‘Modest uptick’ in mortgage delinquencies predicted]