S&P Global Ratings has found prime home loan arrears for the third quarter of 2016 were 25 per cent higher than the same quarter last year, owing to lower wage growth, higher indebtedness and underemployment.
According to the ratings agency, 1.14 per cent of mortgages underlying Australia’s prime residential mortgage-backed securities (RMBS) transactions were more than 30 days in arrears in Q3 2016, compared to the same period in 2015 and 2014.
The ratings agency found that lower wage growth and higher household indebtedness were “undoubtedly contributing to mortgage stress for some borrowers, in addition to declining growth in full-time employment pushing some borrowers into part-time employment” (known as ‘underemployment’).
The mining downturn was also found to be a large contributing factor to the rise, with arrears most evident in Western Australia and Queensland.
For example, arrears fell in all states and territories during Q3 except in WA, where arrears breached the 2 per cent threshold to a national high of 2.03 per cent.
South Australia also had high arrears, at 1.55 per cent, followed by the Northern Territory (1.48 per cent).
Despite this, seven of Australia’s 10 worst-performing postcodes in the third quarter were in Queensland, up from Q2, when five of the state's postcodes were in the top 10.
This was partly attributed to the “spill-over effect” from the downturn in mining investment in areas with a greater exposure to the resources sector.
While mortgage arrears in Q3 were higher this year, the ratings agency noted that they remain below their peak of 1.69 per cent and decade-long average of 1.25 per cent.
Further, comparing the figures quarter-on-quarter, the agency revealed that the percentage of home loans more than 30 days in arrears had declined from the second quarter of 2016 (when arrears were around 1.19 per cent), as expected.
S&P added that, while unemployment levels are relatively stable and interest rates low, the agency expects that “most of the borrowers whose loans underlie RMBS transactions [would] stay on top of their mortgage repayments”.
“We expect arrears to decline during Q3 before rising again ... as Christmas approaches,” it added.
Measuring the weighted-average arrears more than 30 days past due on residential mortgage loans in both publicly and privately rated Australian RMBS transactions, S&P found the total value of loans (including non-capital market issuance) to be $134.28 billion in Q3.
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