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Non-banks continue to have lowest mortgage arrears

by James Mitchell4 minute read

The number of delinquent housing loans underlying Australian prime residential mortgage-backed securities fell in November 2016 from the previous month, according to a recent report by S&P Global Ratings.

Prime mortgage arrears were up 25 per cent from a year earlier, but remain relatively low. A total of 1.15 per cent of the mortgages underlying Australian prime RMBS were more than 30 days in arrears in November, as measured by Standard & Poor's Performance Index (SPIN), down from 1.16 per cent in October.

The S&P report found that arrears decreased month-on-month for most originator categories. The exception was regional banks, which recorded an increase in arrears to 1.88 per cent from 1.85 per cent a month earlier.

“Non-bank financial institutions continued to have the lowest arrears, at 0.63 per cent, followed by non-bank originators, at 0.95 per cent, then other banks, at 0.96 per cent,” the report said.

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“Major bank arrears were unchanged month-on-month in November at 1.14 per cent. Arrears rose year-on-year for all originator types except non-bank originators, which reported a 0.2 per cent fall.”

S&P found that, ignoring cyclical fluctuations, arrears have increased, albeit from low levels.

“This is not unexpected, given the increasing debt serviceability pressures on certain borrowers during a period of lower wage growth and rising underemployment,” the ratings agency said.

“A modest rise in arrears from these relatively low levels is unlikely to create ratings pressure for most Australian RMBS transactions. The senior tranches in particular continue to benefit from a build-up in credit support.”

[Related: Non-bank launches new investor mortgage offering]

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James Mitchell

James Mitchell

AUTHOR

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

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