Mortgage delinquencies won't rise: RP Data

A combination of low unemployment and rising household incomes should ensure that the rate of prime mortgages 90 days or more in arrears remains under 1%, according to Tim Lawless, head of research at RP Data.

Lawless was speaking to Property Observer on the back of the latest Fitch Dinkum Index, which revealed that rate of second-tier residential mortgage-backed securities (RMBS) loans more than 90 days in arrears had increased. Arrears jumped from 0.54% in the fourth quarter of 2010 to 0.65% in the first quarter of 2011.

This is still under the 0.72% recorded for arrears of more than 90 days in the December 2008 quarter during the height of the GFC.

 “It is very doubtful we will see prime loan delinquencies rise much higher than the current rate, considering unemployment is so low and household incomes are rising at a rate more than double that of CPI,” Lawless says.

“As evidenced by the high rate of household savings, it is likely that most Australian mortgage holders are focusing on paying down debt rather than spending.”

According to Lawless, “Australia’s full-recourse lending regime is a major incentive when it comes to debt payment.

“The vast majority of Australians will adjust their spending patterns and make lifestyle sacrifices before they fall behind on their debt payments,” he adds.

A report in The Sydney Morning Herald highlighted efforts made by the major banks to breathe life into mortgage lending by a combination of discounts on mortgage rates and lower lending requirements on prime mortgages.

Commonwealth Bank of Australia has increased its loan-to-valuation ratio from 90% to 95%, and Westpac is allowing people to borrow up to 85% of the value of their homes without requiring lenders mortgage insurance.

The Fitch Index recorded that delinquencies of more than 30 days in the Australian prime RMBS sector reached a record high of 1.79% in the first quarter of 2011, up 42 base points from the December 2010 quarter. The previous peak was in December 2008.

Fitch analysts believe RMBS delinquencies have peaked in the current cycle and expect them to “fall slightly in either quarter two, 2011 or quarter three, 2011 as the usual seasonal effect dissipates and borrowers affected by flooding are expected to receive financial support and for business conditions stabilise”.

 The prediction does not factor in the impact of likely interest rate rises later this year.