iscover
iscover 
According S&P Global Ratings’ RMBS Performance Watch: Australia for Q3 2024, the average arrears rate across Australia is 0.90 per cent. Getting knocked off top spot by Victoria was Western Australia, which has reportedly long held the highest arrears rates.
State by state, the rates sit at:
- Victoria (1.07 per cent)
- Northern Territory (1.05 per cent)
- NSW (1 per cent)
- Western Australia (0.91 per cent)
- South Australia (0.7 per cent)
- Queensland (0.61 per cent)
- ACT (0.6 per cent)
- Tasmania (0.5 per cent)
According to S&P analyst Erin Kitson, longer pandemic lockdowns and the flow-on were recognised as key drivers of Victoria’s poor performance.
“Longer lockdowns in Victoria and their effects on income, business, and rental cash flows meant many Victorians went into this tightening cycle from a weaker position. Higher unemployment and lacklustre property price growth, compared to other states, is contributing to higher mortgage arrears in Victoria. Mortgage arrears are a lagging indicator of financial pressure, as homeowners will prioritise most other expenditures to stay on top of mortgage repayments,” she said.
After the increase in interest rate rises, investor arrears grew faster than owner-occupiers did and higher property taxes added further stress.
Despite a spike in Victoria, the report said that arrears are stabilising as borrowers adjust to interest rates. Western Australia and Queensland have witnessed far better rates as a result of thriving local economies, said S&P. Further, less discretionary spending is reportedly reducing figures.
Kitson said: “As most home loans in Australia are variable rate, they are more sensitive to interest rate movements. Rate cuts will alleviate debt serviceability pressures and lower mortgage arrears.”
However, it may get worse as the report said that unemployment is on the rise and could impact arrears. Despite this, with interest rate cuts penned for 2025, it may offset any real damage.
“Households’ prudence in reducing discretionary spending to stay on top of non-discretionary expenditures, including mortgage repayments, is helping to keep mortgage arrears low. Other key factors contributing to this resilience are low unemployment, rising property prices, and refinancing opportunities. The use of offset and redraw facilities to help ease cash flow pressures is another factor limiting mortgage arrears,” said S&P.
“The persistence of higher interest rates will see more borrowers enter arrears as unemployment rises. This will lead to an increase in arrears in the months ahead, because they are a lagging indicator and one of the last places where financial stress manifests. However, provided unemployment remains low overall, we expect most borrowers to avoid going into arrears, minimising any dislocation in mortgage markets and systemic risk.”
Rising property prices are also taking a toll on arrears rates, with unaffordability leaving people struggling to make repayments.
Broken down further, the 10 suburbs that experienced the highest arrears were:
- Craigieburn, Victoria (2.96 per cent)
- Bateau Bay, NSW (2.63 per cent)
- Liverpool, NSW (2.49 per cent)
- Burnside, Victoria (2.19 per cent)
- Pakenham, Victoria (2.16 per cent)
- Airds, NSW (2.08 per cent)
- Carrara, Queensland (2.05 per cent)
- Point Cook, Victoria (1.98 per cent)
- Hoppers Crossing, Victoria (1.98 per cent)
- Bucketty, NSW (1.78 per cent)
“Higher interest rates and loss of income are a key cause of mortgage arrears. Falling property prices can also exacerbate debt serviceability pressures, as it inhibits a borrower’s ability to voluntarily sell a property without realising a loss. Declining property prices can also hinder refinancing prospects, which is a common way for borrowers to self-manage their way out of financial pressure,” said Kitson.
Related: Arrears are accelerating, but RBA believes risks ‘remain contained’
ISCOVER 
