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Arrears to ‘stabilise’ in response to rate relief

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Reporter 4 minute read

Home loan delinquencies have declined and are expected to further “stabilise” off the back of interest rate cuts and tax deductions, according to S&P.

Standard & Poor’s latest RMBS Arrears Statistics has revealed that over 30-day delinquencies underlying Australia’s residential mortgage-backed portfolio declined in May, falling from 1.53 per cent to 1.52 per cent.

Arrears declined across the country, with the exception of the ACT and Tasmania, where they rose by 14 bps and 5 bps, respectively.

The Northern Territory recorded the sharpest drop in arrears over the month of May (22 bps), followed by Western Australia (11 bps), South Australia (4 bps), NSW and Victoria (3 bps) and Queensland (1 bp).

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However, the prolonged effect of the downturn in the mining sector remained evident, with arrears highest in the Northern Territory (3.1 per cent), followed by Western Australia (3 per cent), Queensland (1.93 per cent), South Australia (1.57 per cent), Victoria (1.4 per cent), NSW (1.24 per cent) and the ACT and Tasmania (1.20 per cent).

Despite the national decline in arrears over the month of May, delinquencies remain 13 bps higher year-on-year, up from 1.39 per cent in May 2018. 

However, according to S&P, delinquencies will begin to moderate in response to recent interest rate cuts and tax deductions, which it said would help ease the mortgage burden.

“We expect the stabilisation in arrears to continue in the next quarter,” S&P noted. “Interest rate and tax cuts will assist with debt serviceability, aided by the historical seasonality of arrears.”

Though S&P does not expect income relief to ease repayment pressures for all mortgage-holders due to continued refinancing restrictions.

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“We believe these factors will mainly affect the less-severe arrears categories and that borrowers who are deeper in arrears are more likely to struggle due to fewer refinancing options,” S&P added.

[Related: Rise in mortgage delinquencies forecast to continue]

Arrears to ‘stabilise’ in response to rate relief
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