Australian prime home loan arrears fell in August, as regional areas are noted to be facing increased pressure on mortgage payments.
A new report from S&P Global Ratings shows a decline from 1.38% in July to 1.36%, but this is a number than the August average for the past five years of around 1.13%.
The report, ‘RMBS Arrears Statistics: Australia’, also showed an ongoing increase in home loans which are more than 90 days in arrears.
Loans more than 90 days past due reached 0.74%, making up around 54% of total arrears, up from 42% five years ago.
Regional bank mortgage originators reported the highest percentage of loans more than 90 days in arrears in August, at 1.33%, followed by the major banks, at 0.99%.
According to S&P, “Some of the increase is due to geographic influences. This is most evident in the regional bank portfolios, which have a 35% exposure to Queensland, compared with 28% for the entire RMBS prime portfolio, and 18% exposure to Western Australia, compared with 11% for the entire portfolio.
“The downturn in the mining sector and an ongoing drought in agricultural areas are placing pressure on mortgage payments in Queensland and Western Australia.
“The number of loans in the advanced stages of arrears in the major banks' RMBS portfolios is also elevated.
“The reasons for this include geographic pressures, repayment shock for interest-only loans that have recently transitioned to principal-and-interest payments, and general mortgage stress.
“This is likely to continue in response to recent out-of-cycle rate rises. The weighted-average seasoning of major banks' RMBS loan portfolios is also higher than originators such as nonbanks, which have dominated RMBS new issuance in 2018.
“This accounts for some of the divergence in arrears performance as more seasoned loan portfolios typically exhibit higher arrears.”
Looking further ahead, the group said, “We expect falling house prices to put further pressure on mortgage arrears in coming months. Borrowers with higher loan-to-value (LTV) ratios are more likely to be affected by softening property prices because they have not had time to build up equity or accumulate mortgage buffers.
“This could tip some borrowers into a negative equity position, which would significantly impede their refinancing prospects in the current lending environment.
“Across all RMBS loan portfolios we expect borrowers with LTV ratios of 80% and higher to be most at risk. These loans account for around 13% of RMBS loan portfolios.
“Continued jobs growth and stable employment conditions are fundamental in enabling the majority of borrowers in Australian RMBS portfolios to meet their mortgage repayments.”
