Mortgage arrears for prime residential mortgage-backed securities have fallen, according to data from S&P Global Ratings.
Mortgage arrears fell to 1.08 per cent in September across Australian residential mortgage-backed securities (RMBS), down from 1.10 per cent in August 2017.
The figure is below the September average of 1.15 per cent but reflects a five-year trend of decreasing arrears between the months of August and September.
S&P Global Ratings has attributed the decrease to improvements in employment conditions and low interest rates.
The report reads: “The Reserve Bank of Australia recently said employment has increased in all states and has been concentrated in full-time jobs.
“This economic setting is positive for mortgage arrears, which generally have declined in most states and territories in 2017.”
The report also noted that while increased rates on riskier loans have brought “lending growth in line with regulatory limits”, its impact on RMBS has been minimal.
“[T]he impact on Australian RMBS transactions has been somewhat muted because most loans underlying transactions are variable-rate amortising loans to owner-occupiers.”
Outstanding loan repayments on 30- to 60-day arrears also declined in most states between January and September; however, there was an increase in balances that were more than 90 days overdue in Western Australia and Queensland within the same period.
The report also noted that most loans are “well seasoned” and exceed 60 months, but warned that lending standards must be upheld to reduce risk.
“Less seasoned loans underwritten during a period of strong property price growth and low interest rates could be more vulnerable to deterioration in economic conditions and rising interest rates,” the report reads.
“Prudent lending standards are an important safeguard in managing this risk.”
S&P expects arrears to rise over the coming months, as they “traditionally start to increase in November and continue through to March.”
Mortgage arrears fell in every state but rose in both the Northern Territory and the ACT during September.
Although, the ACT tops the list with mortgage arrears of only 0.64 per cent, while Western Australia has the highest arrears of 2.21 percent.
[Related: Home loan arrears fell in August]
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