Home loan delinquencies fell in August but are 23 basis points higher than the monthly average, according to Standard & Poor’s.
Standard & Poor’s (S&P) has reported a fall in delinquencies over 30 days, which underlie Australia’s residential mortgage-backed securities (RMBS), from 1.38 per cent in July to 1.36 per cent in August.
However, S&P has noted that arrears are “noticeably higher” than the five-year August average of 1.13 per cent.
Further, the ratings agency reported an “ongoing increase” in home loans that are more than 90 days in arrears, which rose to 0.74 of a percentage point in August, which S&P said made up around 54 per cent of total delinquencies, up from 42 per cent five years ago.
According to S&P, regional banks reported the highest percentage of loans more than 90 days in arrears in August, at 1.33 per cent, followed by the major banks, at 0.99 of a percentage point.
The ratings agency attributed some of the increase to “geographic influences”, which it said is most evident in the regional bank portfolios, noting that such lenders have a higher exposure to the resource states of Queensland and Western Australia, where borrowers have been affected by drought and the post-mining boom market decline.
S&P also partly attributed the rise in arrears over 90 days to “repayments shocks” experienced by interest-only borrowers switching to principal and interest, and “general mortgage stress”.
S&P stated that borrowers with higher loan-to-value ratios (LVRs) are more likely to be affected by softening property prices, because they typically do not have time to build up equity or accumulate mortgage buffers.
“This could tip some borrowers into a negative equity position, which would significantly impede their refinancing prospects in the current lending environment,” the ratings agency continued.
“Across all RMBS loan portfolios, we expect borrowers with [LVR] ratios of 80 per cent and higher to be most at risk.
“Continued jobs growth and stable employment conditions are fundamental in enabling the majority of borrowers in Australian RMBS portfolios to meet their mortgage repayments.”