December quarter sees delinquency drop: Fitch

New figures released by Fitch have suggested Australia has experienced a decrease in delinquency rates, with the ratings agency reporting a quarterly drop during the end of the 2021 calendar year. 

According to these latest findings, which are included in Finch’s Mortgage Market Index – Australia: The Dinkum RMBS Index 4Q21 report, 30+ day arrears across the country were recorded at 0.92 per cent during the three-month period, marking a 10 basis drop comparative to the previous quarter. 

Compared to the December 2020 quarter, this latest result presents a drop of 9 basis points.

Further, the report noted that 30+ day arrears for non-conforming loans fell by 76 basis points over the quarter to 2.04 per cent.  

Fitch has said that while arrears have historically increased over the December quarter, this is the seventh instance since 2005 that its rates were either less than or equal to what was reported during the prior quarter. 

These findings mirrored results released by Moody’s earlier this month, which also reported a decline in residential mortgage-backed securities (RMBS) arrears over the December quarter. 

The ratings agency has attributed this improvement to a series of developments, including improved employment rates, rising housing values potentially encouraging borrowers to sell, the easing of lockdown restrictions and low-interest rates.

“Mortgage repayment buffers increased during the pandemic amid historically high savings rates, which have been used to pay down mortgage balances or have been placed in mortgage offset accounts,” the report stated.

The report also noted that, while there is the possibility of higher inflation and rising interest rates, it expects asset performance over 2022 will be supported by strong mortgage serviceability and high levels of employment.

However, Fitch has expressed that there is likely to be some impact on arrears in the wake of the floods that impacted both South-East Queensland and northern NSW. 

Yet the ratings agency speculates, based on what was observed during the 2011 Queensland floods that this will have an overall minimal impact of RMBS delinquencies. 

“There is likely to be some increase in 30+ days arrears, but we do not expect a rise in 90+ day arrears, as lenders will offer hardship relief to affected borrowers,” Fitch said. 

“The impact is further limited by RMBS portfolios’ geographical diversification.”

[Related: Delinquency rates to 'hold steady' over 2022: Moody's]