Mortgage arrears still climbing

Via S&P:

Australian prime home-loan arrears remained steady in June, with the Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages slipping 1 basis point to 1.51% from a month earlier. That’s according to S&P Global Ratings’ “RMBS Arrears Statistics: Australia,” published today.

Arrears typically decline in June and throughout the third quarter. Mortgage arrears were up 13 basis points year on year in June and above the five-year average of 1.25%.

Arrears fell in Queensland, South Australia, Northern Territory, and Australian Capital Territory, but rose in Western Australia, Tasmania, New South Wales, and Victoria. Arrears continued to rise in Western Australia, despite a small improvement in May, increasing to 3.05% from 3.00% a month earlier. South Australia recorded the largest month-on-month improvement, with arrears falling 5 basis points to 1.52%.

Investment arrears were almost unchanged in June, falling 1 basis point to 1.47%, and owner-occupier arrears rose 1 basis point to 1.74% from a month earlier. Owner-occupier arrears have continued to rise toward their long-term peak of 1.83%, despite interest rates being around 3.00% lower. This reflects borrowers’ increased debt-serviceability pressures in a low wage-growth environment.

We expect arrears to stabilize in the next quarter, in line with the seasonal pattern and assisted by cuts to interest rates and taxes. These stimuli will have a greater effect on the less-severe arrears categories, which historically have been more sensitive to interest-rate cuts. Improvements in housing market conditions also should help bolster lending conditions and improve borrowers’ refinancing prospects.

In other words, seasonally adjusted arrears are still rising.

David Llewellyn-Smith
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