Fitch has released its quarterly arrears figures for RMBS and the results are an unsurprising improvement generally, with holiday regions lagging significantly:
- Delinquencies Down: Delinquencies across Australia decreased to 1.20% at the end of September 2012, down 40bp from 1.60% at end-March 2012. The current rate of delinquencies is significantly below the five-year average of 1.56%.
- Monetary Policy a Boost: All Australian states saw improvements in mortgage performance. Improvements were driven by the Reserve Bank of Australia’s (RBA) decision to further reduce the cash rate by 50bp in May 2012 and 25bp in June 2012, and the subsequent reduction in mortgage interest rates. Regions southwest of Sydney, west of Melbourne, and south of Brisbane – where serviceability is key to mortgage performance − benefited most from the cuts.
- Affluent Regions Best Performers: Lower Northern Sydney in New South Wales (NSW), Inner Brisbane in Queensland (QLD), Northern Middle Melbourne in Victoria (VIC) and Central Metropolitan Perth in Western Australia (WA) were the best performing regions in their respective states, by both mortgage value and number of mortgages in arrears.
- Worst State: Queensland remained the worst performing state, with a 30+ day delinquency rate of 1.41%, although its performance had improved significantly − it was down from 1.86% at end-March 2012. Most of Australia’s 10 worst performing regions were in Queensland. Gold Coast East Worst Region: Gold Coast East (QLD) replaced Fairfield-Liverpool (NSW) as the worst performing region in Australia, with a 30+ day delinquency rate of 2.44%, and 16 out of 1,000 borrowers in arrears. The level of 90+ day arrears is 1.14%, above the Australiawide average of 0.50%.
- Tourist Areas Benefit Least: Gold Coast West (QLD) and the Sunshine Coast (QLD) were the second and fourth worst performing regions in Australia, respectively. Coastal regions that rely on tourism are less affected by monetary policy and more by the high Australian dollar, housing prices, occupancy rates and rental yields. This is evidenced by popular tourist destinations being among the worst performing suburbs.
Here are the worst 20 postcodes by value:
The poor performance of holiday regions is matched by a concentration of poorly performing investment loans:
- Investment Loan Delinquencies Higher: 90+ day arrears of investment mortgages were on average 1.51x higher than owner-occupied mortgages at end-September 2012; this follows a 10-year average of 1.16x. However, 30+ day arrears have been more or less the same for investment mortgages and owner-occupied properties over the 10-year period.
- Inner Metro Most Popular: Inner metropolitan postcodes have a higher-than-average concentration of investment loans. CBDs and inner-city regions of all major metropolitan areas are among the top 20 regions/postcodes measured by concentration of investment loans. The region and postcode with the highest concentration of investment loans in securitised portfolios are Inner Brisbane and Sydney CBD at 39% and 57%, respectively, at end-September 2012.
- Tourist Regions Also Popular: The Gold Coast East, Gold Coast West and the Sunshine Coast were among the top 20 regions by concentration of investment loans. Surfers Paradise and Noosa Heads in Queensland, and Nelson Bay and Byron Bay in New South Wales were among the postcodes with the most investment loans − more than 40% securitised mortgages.
- Metro Delinquencies Low: Investment loans backed by properties in inner-metropolitan areas have low levels of delinquency rates. For example, investment loans in Inner Sydney and Inner Melbourne were performing well, with low 90+ day arrears at 0.50% and 0.29%, respectively, compared with the Australian average of 0.68%. However, Inner Brisbane delinquencies were higher at 1.04% due to a few delinquent multi-million-dollar mortgages. Overall, owner-occupied mortgages have performed better than investment loans in metropolitan areas.
- Tourist Areas Arrears High: Tourism and/or coastal urbanisation areas tend to have above-average 90+ day delinquency rates. Among the 20 worst performing regions by 90+ day arrears for investment loans are South West Western Australia (1.53%), the Sunshine Coast (1.10%) and Gold Coast East (1.24%).
- Concentration not Driver: The presence of investment loans in any particular area is not itself a driver of mortgage performance. However, where investment loans account for a high proportion of mortgages in a region or postcode, they tend to perform much worse than owner-occupied mortgages in the same region or postcode.