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Non-conforming mortgage arrears fall as demand rises

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Reporter 5 minute read

Non-conforming home loan delinquencies dropped by 33 basis points in April, supported by a rise in issuance, according to new data.

Standard & Poor’s (S&P) latest RMBS Arrears Statistics: Australia report has revealed that non-conforming home loan arrears dropped to a record low of 3.86 per cent in April, down from 4.19 per cent in March.

S&P has attributed the fall to strong issuance throughout the month, with the total amount outstanding increasing by 30 per cent to $5.46 billion.

S&P’s analysis follows on from recent data published by the Australian Prudential Regulation Authority (APRA), which revealed that the value of home loans approved outside of serviceability increased from $1.46 billion at the quarter ended March 2017 to $4.29 billion at the quarter ended March 2018.


Commenting at the time, CoreLogic research analyst Cameron Kusher noted: “Year-on-year, there has been a fall in low documentation and other non-standard lending while there has been a substantial increase in loans approved outside of serviceability (193.7 per cent).”

The S&P arrears report also revealed that arrears underlying Australia’s prime residential mortgage-backed securities also declined, falling from 1.37 per cent March to 1.36 per cent in April.

However, in its recent analysis of mortgage delinquencies over the March quarter, the ratings agency reported that arrears on prime RMBS increased by 30 basis points from 1.07 per cent in the fourth quarter of 2017 (4Q17) to 1.37 per cent in 1Q18.

Owner-occupied mortgage arrears jumped by 28 basis points from 1.28 per cent to 1.56 per cent, while delinquencies on investor loans increased by 26 basis points from 0.93 of a percentage point to 1.19 per cent over the same period.

Mortgage arrears on non-conforming loans jumped by 11 basis points, from 4.08 per cent in 4Q17 to 4.19 per cent to 1Q18.


Despite the nationwide rise in arrears over the March quarter, S&P noted that it expects the delinquency rate to remain stable in the short to medium term, but it noted the spike in arrears over 90 days.

“We expect arrears on the loans underlying Australian RMBS portfolios to remain relatively unchanged in the short to medium term, given the current stability in interest rates and employment conditions,” the ratings agency noted. 

“However, we believe the severe arrears category of loan repayments that are more than 90 days late is an important indicator.

“Severe arrears have increased during the past year, reflecting macroeconomic trends of underemployment and sluggish wage growth, in our opinion.

“These conditions have affected the resource states most strongly.”

The ratings agency added that it does not expect the rise in arrears to drive up the default rate.

“Arrears rose in most states in Q1, but we believe the rise is unlikely to lead to materially higher default rates or lowered ratings in the coming year.  

“This is because employment conditions are likely to be positive and most RMBS portfolios have well-seasoned loans with modest loan-to-value (LTV) ratios.”

[Related: Loans approved outside of serviceability triple in one year]

Non-conforming mortgage arrears fall as demand rises
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