Data from S&P Global Ratings has shown a dramatic divide between the performance of prime and non-conforming loans over the past 12 months.
Non-conforming loans recorded a stronger year in terms of both arrears percentages and volume of loan balances.
The 90+ days arrears for full doc prime loans increased from 0.70% in July 2018 to 0.81% in June 2019, while the same figure jumped from 3.10% to 3.71% for lo-doc prime loans.
Conversely, 90+ days arrears for non-conforming loans improved over the year, albeit by a small margin, inching down from 1.57% in July 2018 to 1.52% in June 2019.
Further, the total current loan balance (TCLB) for full doc prime loans decreased from $122.6bn to $116bn over the year, with lo docs also charting a downward progression, dropping from $1.0bn to $0.99bn.
Meanwhile, non-conforming loans rocketed the other direction, nearly doubling the TCLB from $4.6bn in July to $9bn in June 2019.
The S&P report also noted that the outlook for debt serviceability is improving, with lower interest rates likely to help ease mortgage repayment stress for borrowers. However, the improvement is more likely to be evidenced in the earlier categories, with the 90+ days arrears “unlikely to improve” due to tougher refinancing conditions, lower property values and slow wage growth.
Of the top 20 regions with the highest arrears, 16 of them are in Queensland or Western Australia.
The top six regions with the lowest arrears are in Sydney, where current 30+ day arrears are at 1.26%.
Victoria also boasted areas with some of the lowest 30+ day arrear rates in the country, at 1.40%,
Arrears performance in Tasmania improved dramatically over the year, with the stronger property market leading to current 30+ day arrears resting at 1.27%.
While the report suggested that borrowers with more recent loan originations who were subjected to tighter lending standards are likely to be more resilient to mortgage stress, slowing economic conditions could lead to income pressure, leaving the “highly indebted household sector vulnerable to a sudden shift in economic conditions.”
