Fitch Ratings Agency has this morning released its Australian Mortgage Delinquencies by Postcode report for the March quarter, which revealed that overall mortgage delinquencies increased to 1.45% at end-March 2013, up from 1.2% at end-September 2012, but below the five-year average of 1.53%.
From Fitch:
Fitch Ratings says mortgage performance in Australia has converged such that the gap between the worst and best performing states is at its tightest since 2004.
In its latest Q113 report, Fitch says the difference in delinquency rates between the worst and best performing states was only 29bp, with arrears in the 1.29%-1.58% range.
On average, the delinquency rate across Australia increased to 1.45% at end -March 2013, up from 1.2% at end-September 2012, but below the five-year average of 1.53%. New South Wales (NSW) and Queensland (QLD) were the worst performing states in regards to mortgage performance, both with a 30+ day delinquency rate of 1.58%.
However, within each state, mortgage performance diverged between low-income areas and affluent regions.
Regions southwest of Sydney, west of Melbourne, and south of Brisbane, where serviceability is key to mortgage performance, experienced the sharpest increase in arrears. These regions recorded an increase in delinquency rates in the 26bp-55bp range, above the national average increase of 25bp. Fairfield-Liverpool (NSW) returned to being the worst-performing region with a 30+ day delinquency rate of 2.37% at end-March 2013, compared with 1.82% at end-September 2012.
Delinquency rates were little changed in Australia’s most affluent regions. Lower Northern Sydney (NSW), Southeast Inner Brisbane (QLD), Boroondara City in Victoria and Central Metropolitan Perth in Western Australia were the best performing regions within their respective states. On average, the ten best performing regions worsened by 10bp, to 0.73% from 0.63% in September 2012, and showed no change in the number of borrowers in arrears, still five out of every 1,000.
The increase in delinquency rates indicates that the Reserve Bank of Australia’s (RBA) decision to reduce the cash rate did not positively impact mortgage performance in the six months to March 2013, in contrast to the six months to September 2012.
Christmas spending and increasing cost of living might have arguably offset the positive benefits from lower mortgage rates, but do not fully justify the increase in delinquency rates. The increasing number of delinquent borrowers in low-income and high-unemployment regions might indicate that these specific serviceability constraints cannot be fully solved by monetary policy, unlike previous first quarters characterised by rate cuts.
Therefore, the delinquency rate in these regions may have reached a floor in September 2012 when arrears were in line with, if not lower than the delinquency rates in 2004, the lowest level recorded from the data used in this analysis.
Just as coastal regions did not benefit as much as low-income regions from the monetary policy changes over the 12 months to March 2013, they also did not show the same degree in volatility in performance. Gold Coast East (QLD) 30+ days arrears improved 15bp to 2.29% as of March 2013, but the 90+days arrears are still high at 1.22% in March 2013 (vs. 1.14% in September 2012).
Nelson Bay (NSW) remained the worst performing postcode by value of mortgages in arrears, with a 30+ day delinquency rate of 6.6%. Montrose in Tasmania was still the worst performing postcode by number of mortgages in arrears, with 33 borrowers out of 1,000 in delinquency.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
