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Home loan arrears fell in August

by Reporter5 minute read
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The number of delinquent housing loans fell to 1.10 per cent in August, down from 1.17 per cent in July.

The figures were reported in the S&P Global Ratings report RMBS Arrears Statistics Australia, which looks at the underlying Australian prime residential mortgage-backed securities (RMBS). 

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According to S&P, the decline is “not unusual” as they have typically fallen in August for the past 10 years.

The nonconforming sector fell to 4.48 per cent in August, down from 4.80 per cent in July, despite a decline in outstanding loan balances during the month.

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The largest improvement was recorded for mortgages 31–60 days in arrears. 

On a state-based level, arrears decreased in all states and territories, except the Australian Capital Territory (ACT), where loans more than 30 days in arrears increased by 0.01 percentage point to 0.63 per cent. 

The ACT, in August, retained the top spot for lowest arrears. The Northern Territory (NT) recorded the largest improvement, with arrears declining to 1.63 per cent from 1.98 per cent a month earlier. (However, because loan exposures are small in the NT, at just under 1 per cent, arrears performance can exhibit greater volatility in percentage terms.) 

In Western Australia, arrears fell to 2.22 per cent in August from a historic high of 2.38 per cent in July.

New South Wales, Victoria and Queensland, where around 80 per cent of loan exposures are held, all recorded an improvement in arrears in August.

Relatively stable employment conditions and low interest rates continue to underpin the low levels of arrears for most Australian RMBS transactions.

S&P also noted that low interest rates have had a more pronounced effect on interest-only loans, which have recorded a “more rapid decline in arrears than amortizing loans” for the past few years. Interest-only loans make up about 24 per cent of Australian RMBS portfolios.

The analysts stated: “We believe lending standards generally have tightened in many areas since attracting greater regulatory scrutiny beginning in 2015. Some loans underwritten before 2015 could be more susceptible to higher arrears, particularly interest-only loans with higher loan-to-value (LTV) ratios for which no equity has built up during the interest-only period, in our opinion. 

“Partly offsetting these risks is many loans’ high seasoning of around 60 months, particularly amortizing loans. This has resulted in a reasonable degree of equity build-up and a demonstrated repayment history, because most defaults tend to occur in the first 60 months.” 

Amortizing loans make up around 76 per cent of total RMBS loans outstandings.

S&P continued: “Increases in mortgage rates will put pressure on arrears for certain borrowers, particularly more recent originations with higher LTV ratios.

“Provided employment conditions remain relatively stable, however, we do not anticipate arrears materially increasing above current levels in the next 12 months.”

[Related: Mortgage arrears at five-year high: Moody’s]

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