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Mortgage arrears have risen year on year according to a new report.
The figures from S&P Global Ratings show prime mortgage arrears rose to 1.33% in the quarter ending September 30, from 1.08% the year before.
The agency puts the increase down to increasing interest rates at the banks and difficult refinancing conditions but said strong employment conditions and optimistic wage growth had offset the effects.
With interest rates more likely to go up than down, the group said it expects some borrowers to experience debt-serviceability pressures in the coming months.
Adding, “However, we believe most of the borrowers in Australian prime RMBS portfolios should be able to absorb a gradual rise in interest rates. Borrowers with seasoned loans, which make up the majority of most transactions outstanding, have a demonstrated repayment track record.
“Meanwhile, loans originated in more recent years do not have the benefit of seasoning but have been underwritten during a period of tightened underwriting criteria and subject to debt-serviceability calculations that include interest-rate buffers and floors. Less-seasoned loans with higher loan-to-value ratios are most likely to experience higher arrears.”
The report also looked at falling property prices, which S&P said will erode borrowers’ equity in their home loans, which comes off the back of several years of price growth.
The group said that while property price declines will increase loss severity in the event of borrower foreclosure, borrower behaviour is predominantly influenced by affordability considerations.
It said defaults in Australia historically have been influenced by triggers such as unemployment, divorce and health-related issues.
