the adviser logo

Non-conforming mortgage arrears fall as demand rises

by Reporter5 minute read
fall, arrow down

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.

To continue reading the rest of this article, create a free account
Already have an account? Sign in

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
arrow down red
TheAdviser logo
arrow down red


You need to be a member to post comments. Register for free today


Glen Lees

Connective announces record settlement figures

Mortgage aggregator Connective has revealed that its brokers settled a record $95.5 billion across its residential,...

charles grover outfund ta zgvq5o

New SME lender launches into broker channel

A new fintech lender, Outfund, is ramping up for growth through the broker channel after having completed a capital...

david bailey afg ta l8ozkr

AFG’s bottom line hit by Volt closure

The ASX-listed company, Australian Finance Group Ltd (ASX: AFG) has confirmed it is set to deliver “strong...

Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more