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With emerging data suggesting arrears are set to rise, brokers have highlighted what they’re noticing from their clients.
Arrears appear to be steadily on the climb, with the most recent data released by Moody’s Investors Service suggesting mortgage delinquencies will continue to rise this year as repayments outpace income growth.
Moody’s latest data for residential mortgage-backed securities (RMBS) has revealed the share of prime-quality home loans at least 30 days in arrears was 1.62 per cent in December 2023, an increase from 1.45 per cent in September 2023 and 1.05 per cent a year prior.
Furthermore, the Council of Financial Regulators (CFR) flagged that there has been an increase in the number of households falling behind loan repayments, with hardship applications having “risen materially” despite coming off historically low levels.
This coincided with S&P’s RMBS Performance Watch: Australia quarterly report that found that prime mortgage arrears had risen to 0.97 per cent by the end of December 2023 (from a historical low of 0.58 per cent), while illion recently found that 0.4 per cent of all home loan accounts (approximately 23,000) are in some type of hardship agreement.
What are brokers seeing and how are they helping those falling behind?
Speaking to The Adviser on the matter, Loan Market Geelong managing director Sarah Thomson said: “We have seen an increase in arrears and it’s not necessarily where or who we thought would be impacted.
“We’ve seen a lot of families with strong dual incomes that are teetering on arrears at the moment and with increased rates and living costs, its putting pressure on things such as private school fees.
“It’s highly unlikely someone will pull their children out of a school, so they’re more likely to ask for a reprieve on their home loan or ask for interest only (IO) repayments to give them some breathing space in the hope that rates reduce in the near future.”
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Thomson further flagged that another impacted cohort of borrowers reaching out for help are women looking to go on maternity leave.
She continued: “Previously clients were coming to us with a strong savings position but now the buffer is a lot lower so clients are needing to contact the bank to look at IO or a payment pause.
“We have been monitoring our existing clients to see if any arrears flag and in addition with our review process, this also picks up any concerns.
“There’s actually been a lot of inquiries around reverting to IO payments to take the pressure off mortgage holders.
“In situations like this we’ve been assisting clients on the process of how to apply for IO repayments, what the potential impact may be if they want to borrow further funds in the future and the financial impact to them as well so that they can make an informed decision.”
Similarly, owner of Mortgage Choice Berwick, David Thurmond, told The Adviser that they’ve seen a small increase in arrears over the last six months, but their clients are managing for the most part.
“When offering suggestions on how to relieve cash flow issues, we start with the easiest changes to make and work our way up: create a budget, cut back where you can, increase hours at work, refinance for a better rate, extend your loan term, sell any unneeded assets (boats and cars) or sell the property,” he said.
Contrarily, Social Financial founder and mortgage broker Tommy Anderson said he’s “seen the opposite” from his clients in terms of rising arrear rates.
“People are tending to sell their properties before they get to the point of arrears. Downsizing property or selling investment properties,” Anderson said.
“I definitely think there is strain on people financially but I also think people are budgeting a lot better and the people who aren’t are selling and renting.”
Although Anderson hasn’t personally seen an increase in arrears, he stated: “It’s definitely hard out there and I hear it a lot from other brokers.
“The way I’m helping my clients is by providing options to reduce mandatory cash flow which might mean extending loan terms back out to 30 years to minimise repayments, seeking cheaper options through refinancing or restructuring portfolios to make it more manageable,” Anderson added.
Branch principal and mortgage broker at Yellow Brick Road Earlwood, Effie Nicol, told The Adviser: “At present, I haven’t observed an increase in arrears with my client base due to undertaking ongoing reviews.”
In terms of how brokers can help clients falling into delinquencies, Nicol said: “Brokers need to maintain constant communication with their clients, ensuring they review their facilities, discuss expenses, and identify areas to save money.
“In my experience, clients with investment property facilities are eager to refinance to alleviate the financial strain.”
[RELATED: Hardship applications have 'risen materially', finds CFR]
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