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S&P Global Ratings’ RMBS Performance Watch: Australia for 4Q24 has shown that prime RMBS arrears were 0.87 per cent during the quarter, down from 0.89 per cent in 3Q24. According to the report, arrears have stabilised over recent months due to interest rate rise relief.
S&P found that the low level of arrears “remain underpinned” by near-record low levels of unemployment (currently at 4.1 per cent), as well as refinancing opportunities being available for borrowers, savings buffers, and property price dynamics.
Additionally, borrowers have consistently curtailed expenditures to service their repayments and although S&P predicts that rising unemployment – forecast to reach 4.4 per cent over 2025 and 4.6 per cent in 2026 – will put pressure on repayments, lower interest rates should offset this and keep arrears low.
“In theory, arrears are yet to peak, with unemployment forecast to rise in 2025. But any further rises are likely to be modest, with rate cuts now in play,” the report said.
S&P further revealed that nonconforming arrears increased to 4.18 per cent in 4Q24, up from 4.01 per cent in 3Q24, with property price growth giving financially stretched borrowers a way out of mortgage stress.
During the quarter, prime investor arrears stood at 0.69 per cent compared to 1 per cent for owner-occupiers.
S&P said the lower arrears rate for investors was due to the benefit investors have to offset higher mortgage repayments against higher rentals to a certain extent.
On a state level, Victoria continued to have the nation’s highest arrears and highest unemployment levels, much like it was during 3Q24, with an arrears rate of 1.08 per cent.
Meanwhile, Western Australia, the Northern Territory, and Queensland recorded the largest drops in arrears, reaching 0.8 per cent, 0.91 per cent, and 0.65 per cent in 4Q24, respectively.
With Cyclone Alfred approaching the Queensland coast, the severe weather and flooding for South-East Queensland and parts of northern NSW (currently with an arrears rate of 0.93 per cent) could lead to a higher rate of arrears in many RMBS transactions due to the densely populated areas set to be affected.
“Affected borrowers are also likely to be eligible for hardship arrangements, which will help with cash flow pressures,” S&P said.
“Some regional lenders may have a higher exposure to affected areas, which could lead to higher arrears in some transactions.”
[RELATED: Victoria becomes state with highest arrears]
