Australian Mortgage Arrears At Decade Lows

Fitch Ratings says Australian mortgage arrears have reached a decade low after declining 18bp to 0.91 per cent during 3Q15 according to its latest report.

Two-thirds of the improvement was due to the inclusion of AUD$8.7bn worth of new issuance from 1Q15. Fitch's Dinkum Index would still have reached a decade low, even after removing the impact of these transactions.

House prices in Australia's capital cities have strengthened 11.02 per cent yoy to September 2015 and have had a two-fold impact on mortgage performance. Strong house prices have enabled borrowers to sell their properties to cure arrears, reducing the 90+ days to 0.41 per cent - the lowest level since February 2006. Additionally, prices served to reduce principal losses on sale, maintaining the annualised loss rate unchanged qoq at a low 0.02 per cent.

Self- employed borrowers continue to experience financial difficulties; Low-Doc 30+ arrears increased to 6.97 per cent in 3Q15 from 5.72 per cent in 2Q15. This is despite serviceability factors being as a good as it gets with stable unemployment over the quarter, a low stable cash rate and standard variable rate, and low CPI.

Fitch believes material improvements in 2016 are unlikely and in the current borrower environment, arrears can be attributed to factors outside the economy such as divorce, extraordinary expenses and illness.

Fitch's Dinkum RMBS Index tracks the arrears and performance of the mortgages underlying Australian residential mortgage-backed securities (RMBS).

The full report entitled, 'The Dinkum RMBS Index - 3Q15' is available at www.fitchratings.com