Analysts are warning Australian mortgage arrears are starting to rise as mortgage-relief measures taper off at the end of this month.
In the Standard & Poor’s Performance Index Australian prime mortgages increased to 1.37 per cent in December last year, compared to 1.28 per cent 12 months earlier.
S&P analytical manager Kate Thomson said low interest rates and a strong economic recovery had tempered rising arrears.
“We expect Covid-19-related arrears to more meaningfully surface beginning in the second quarter of 2021, following the expiration of mortgage-deferral periods in March 2021,” Thomson said.
“Strong property market performance will also help existing borrowers by enhancing their equity positions in their homes, improving their refinancing prospects.”
The data showed arrears increases have been more pronounced in inner-city areas where population shifts had impacted on rental incomes, along with the lack of international tourism and migration.
10 worst suburbs for mortgage arrears
|State||Suburb||Loans in arrears|
^Source: S&P Global Ratings (December 2020)
Victoria’s Altona East has the dubious honour of being crowned the worst suburb for loan arrears, followed by Forrestfield and Byford in Western Australia.
Thomson said it was important that prudent lending standards were maintained to offset the risks associated with increasing household-debt-to-income ratio pressures where house price growth outstrips wage growth.
Data from the S&P’s RMBS Performance Watch: Australia Market Overview Victoria had the highest number of Covid-19 hardship mortgage deferrals in Australia, accounting one-third of all deferrals.
New South Wales followed closely with 32 per cent, and Queensland comes in at third with 20 per cent of the country’s Covid-19 mortgage deferrals.
Western Australia has an 8 per cent share of mortgage deferrals, and South Australia has about 4 per cent, with the balance of states and territories accounting for about 1 per cent each.
Inner-city properties in Melbourne and Sydney have suffered some of the worst declines in rental income in the past 12 months as renters abandoned the cities.
According to S&P data these areas formerly had some of the lowest arrears in the residential mortgage-backed securities market - but analysts warn it may be more difficult for investors with inner-city locations to refinance their properties.
Thomson said investors may sell off properties to offload debt.