Australian mortgage arrears have reached the lowest fourth quarter level in 11 years after declining 20bp year-on-year (yoy) to 0.95% in the quarter ended December 2015, Fitch Ratings says. The level of arrears in 4Q15 reflected strong house price growth, low unemployment, low standard variable rates and low inflation.
Self-employed borrowers continue to experience financial difficulties despite positive serviceability factors as indicated by the Low-doc Dinkum Index, which recorded a 32bp increase in 30+ days arrears to 7.29% in 4Q15.
The annualised loss rate remained low in 4Q15 at 0.02%, unchanged for the third quarter in a row. Fitch expects an uptick in losses over 2016 as property price growth moderates. In the year to March 2016, property price growth in the combined capital cities was 6.4%, slowing from the double-digit growth experienced over much of 2H15.
Losses are likely to remain limited, despite the likely slowdown in property price growth, because of tighter serviceability assessments recommended by the Australian Prudential Regulation Authority and the Australian Securities & Investments Commission. The introduction of measures, such as interest-rate floors, means borrowers should have more buffers to withstand increases in interest rates and unemployment, and a slowdown in the housing market.
The changes to underwriting standards are positive for holders of newer vintage RMBS transactions, especially in the current low-interest-rate and high house price environment that has fuelled household borrowing.
Fitch’s Dinkum RMBS Index tracks the arrears and performance of the mortgages underlying Australian residential mortgage-backed securities (RMBS).
