Further data has emerged revealing an encouraging trend in domestic arrears levels but difficult economic conditions are expected to curb further improvements.
According to Standard & Poor’s, arrears on residential mortgage loans underlying prime RMBS transactions eased to 1.63 per cent at the end of the first quarter of the year; this compared to a record high of 1.84 per cent in January.
Standard & Poor’s said the result highlighted the impact of official rate reductions.
“As predicated, the SPIN [index] was slow in showing the effects of the deep cash rate cuts,” Standard & Poor’s credit analyst Vera Chaplin said.
“Historically, Christmas spending has kept arrears levels at a high level, highlighted by the peak in January of 1.84 per cent, but borrowers improved their arrears positions toward the end of the first quarter.
Standard & Poor’s figures support those released by Fitch Ratings last week, highlighting an improvement in Q1 delinquencies.
Despite the result Standard & Poor’s said it did not expect arrears to continue dropping at the same rate in the months ahead.
In contrast, rising unemployment and softer business conditions would put pressure on households, the ratings agency warned. Low doc borrowers would be especially likely to default in the months ahead.
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