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Mortgage delinquencies drop despite rate rises

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Source: screengrab from S&P Global Facebook video

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Reporter 2 minute read

Arrears underlying Australia’s residential mortgages declined in November, despite mounting interest rate pressures.

According to Standard & Poor’s (S&P) latest RMBS Australia report, over-30-day arrears underlying Australia’s prime residential mortgage-backed securities (RMBS) dropped by 2 basis points in the month to 30 November 2018, from 1.35 per cent to 1.33 per cent.

The fall in the arrears rate was driven by a 2 basis point decline in owner-occupied delinquencies, which fell from 1.54 per cent in October to 1.52 per cent in November.

Arrears underlying investor home loans remained stable over the same period at 1.25 per cent, after jumping 6 basis points from 1.19 per cent in the month to 31 October 2018.

Further, arrears remained stable among loans originated by Australia’s major banks (1.66 per cent), regional banks (2.46 per cent) and non-bank financial institutions (0.38 per cent), with a 5 basis point decrease recorded for loans issued by non-bank originators (0.62 per cent).

On a state-by-state basis, NSW recorded the sharpest fall in delinquencies (6 basis points), followed by Victoria and Queensland, which both reported falls of 2 basis points.  

Conversely, the ACT reported the sharpest increase in prime mortgage arrears over 30 days (11 basis points), followed by Western Australia (5 basis points), South Australia (3 basis points), Northern Territory (2 basis points) and Tasmania (2 basis points).

However, the ACT’s arrears rate remained the lowest in the country at 0.99 per cent, followed by NSW (1.06 per cent), Tasmania (1.16 per cent), Victoria (1.20 per cent), South Australia (1.45 per cent), Queensland (1.65 per cent), the Northern Territory (2.40 per cent) and Western Australia (2.63 per cent).

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The S&P data also revealed that arrears on non-conforming RMBS fell in November, declining by 19 basis points, from 3.43 per cent in October to 3.24 per cent in November.

S&P reported that the drop in non-conforming arrears was influenced by a rise in outstanding mortgage balances in November to a total of $7.03 billion, with the ratings agency adding that the non-conforming RMBS portfolio balance grew 48 per cent year-on-year.

The arrears drop was reported despite continued out-of-cycle interest rate rises from several lenders throughout 2018 in response to rising wholesale funding costs, with a second wave of interest rate hikes also announced by some lenders, including NAB, since the turn of the year.

However, S&P said that it expects arrears rates to rise in the coming quarter, in line with “seasonal trends”.

[Related: NSW drives national rise in mortgage arrears]

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