Loan arrears in December up by a fifth

According to the RMBS Arrears Statistics: Australia report by S&P Global Ratings, arrears typically rise between November and April, but only 1.15 per cent of the mortgages underlying Australian prime residential mortgage-backed securities (RMBS) were more than 30 days in arrears in December, the same amount as in November 2016.

The global ratings agency said that while arrears are “still low” at these levels, it is “interesting” that prime arrears have increased by around 0.19 per cent during the past 12 months, despite an around 0.40 per cent reduction in standard variable rates.

The agency stated: “Mortgage arrears typically are sensitive to interest-rate movements because most loans underlying Australian RMBS transactions are variable rate. In recent months, however, there has been a divergence from this trend.”

The report shows that regional banks continue to have the highest arrears of all lenders, at 1.92 per cent for 30-day arrears and 0.85 per cent for loans more than 90 days in arrears, while major banks had 1.12 per cent of loans in arrears in December (down from 1.14 the month before).

Despite the drop in 30-day arrears, major banks recorded the largest year-on-year increase in mortgages that were more than 90 days in arrears (0.59 per cent). However, S&P said that advanced-stage arrears figures “remain low for this sector”.

Non-bank lenders had the lowest level of 30-day arrears, at 0.95 per cent, and also had the lowest number of loans more than 90 days in arrears, at 0.25 per cent.

The arrears index showed the non-conforming loans were at 4.43 per cent in December, up from 4.19 per cent the month before. The ratings agency said that while some of this movement “reflected a contraction in loan balances over the month”, the amount of loans in arrears by 31-60 days and more than 90 days increased.

Despite the increase, however, overall nonconforming arrears decreased from 4.63 per cent a year earlier and are “well below their post-financial crisis peak”.

The ratings agency stated: “While arrears have been increasing, we do not expect this to place any pressure on our ratings on most Australian RMBS, particularly senior tranches, which continue to benefit from strong levels of credit enhancement.

“Relatively stable employment conditions will continue to underpin the low levels of defaults and losses in RMBS transactions. This will support stable ratings performance.”

[Related: Non-bank mortgage arrears fall as big four delinquencies rise]