Australian home loan arrears fell during the third quarter of 2019, and it seems likely they'll continue to improve, according to S&P Global Ratings data just made available.
The S&P Performance Index (SPIN) for Australian prime mortgages declined to 1.36% in September from 1.51% in June, in line with the typical movement at this point in the annual cycle.
Arrears are expected to continue to decline as lower interest rates continue to filter through to underlying loan portfolios, which are mostly variable-rate mortgages, further improving refinancing conditions.
According to Tim Lawless, CoreLogic head of research, “The synergy of a 75-basis point rate cut from the Reserve Bank, a loosening in loan serviceability policy from APRA, and the removal of uncertainty around taxation reform following the federal election outcome, are central to this recovery.”
“There’s also the prospect that interest rates are likely to fall further over the coming months and an improvement in housing affordability following the recent downturn are other factors supporting a lift in values.”
While the softer economic conditions and lower wage growth may put some pressure on debt serviceability for certain borrowers, this will be at the margins, according to S&P.
The income pressure is most likely to impact cohorts such as the self-employed, whose business cash flows are more sensitive to “softening economic conditions”.
Investors and highly leveraged borrowers are also still likely to experience challenges in refinancing their loans in the current bank lending environment.
Conversely, for borrowers of good credit quality, the low interest rates, improving property prices, and adjustment of the serviceability floor will improve access to finance.
Further, the dropping rates are encouraging borrowers to search around for a better deal, with the conditions helping to preserve the competitive environment among lenders for the next 12 months at least.
