This article is from the Australian Property Journal archive
AUSTRALIAN mortgage arrears have hit a five-year high, as persistent inflation and the RBA’s cycle of rate hikes weighs heavily on many borrowers.
According to Fitch Ratings’ latest Dinkum RMBS Index report for Q1 2024, the 30+ days arrears were up 9 basis points over the quarter to 1.30%, building on increases in 2023.
Fitch Ratings noted that arrears typically increase in the first quarter following spending over the holiday season, but this increase is smaller than typical, indicating moderating arrears but also more restrained consumer spending in the current economic environment.
Non-conforming arrears are now at their highest level since the onset of the COVID-19 pandemic, after three consecutive increases.
Fitch’s Non-Conforming RMBS Index 30+ day arrears increased by 49 basis points qoq to 4.19%, which is well below the Q1 2009 record high of 20.9%.
CoreLogic also had the March quarter as the highest reading on mortgage arrears since the first quarter of 2021, though reported the portion of loans behind on repayments was higher at the onset of the COVID-19 pandemic.
Prepayments also dropped to their lowest level in three years on decreased refinancing in the market.
The Dinkum RMBS Index borrower payment rate (BPR) fell to 21.5% in the first quarter, while the conditional prepayment rate (CPR) was down to 19.1%, both down from 15-year highs seen in this time last year.
The RBA’s hikes since May 2022 are set to continue impacting arrears in 2023, with household savings depleted, the high ratio of household debt to disposable income and the dominance floating rate loans.
The earliest arrears period of 30 to 59 days has seen the most significant increase over the quarter, at 0.48% of total loans or the highest early arrears rate seen since February 2016.
Meanwhile, 90+ day arrears were up by 4 basis points to 0.60% over the first quarter.
For non-conforming arrears 30-59 day arrears were up by 40 basis points to 1.68% and 60-89 day arrears increased by 21 basis points to 0.97%, while 90+ day arrears dropped 12 basis points to 1.53%.
Additionally, the Fitch-rated RMBS Index, which includes large issuer-retained transactions, saw 30+ day arrears increase by 12basis points over the quarter to 1.07%. With this index expected to continue to outperform the Dinkum Index.
Over the quarter, the annualised loss rate was stable over the quarter, after rising in the last quarter of 2023 to 0.01%.
LMI providers paid 93.3% of all submitted claims finalised in 1Q24 for Dinkum transactions, this was down 460 basis points over the quarter.
With the LMI payment ratio for Fitch-rated transactions at 90.7%, down 170 basis points from the previous quarter.
