Rate cuts will drive down mortgage arrears even further: Fitch
The two interest rate cuts in November and December are expected to push mortgage arrears rates down further in 2012 as Australians continue to do a better job of paying off their mortgages, according to the latest Fitch Dinkum Index on mortgage delinquencies.
Just 1.52% of prime residential mortgage-backed securitised (RMBS) mortgages were more than 30 days in arrears in the September quarter, a drop of 17 basis points from the 1.69% recorded in June 2011, according to the Fitch’s 30+ Days RMBS Index.
"The stable mortgage performance in the third quarter of 2011 reflects that households have adjusted to the payment stresses of the fourth quarter of 2010 and the first quarter of 2011.
“Mortgage performance is expected to continue its improvements in the fourth quarter of 2011, further assisted by the recent interest rate decreases in November 2011, with the December 2011 decrease having more of an impact in the first quarter of 2012," says Courtney Miller, analyst in Fitch's structured finance team.
Across the RMBS sector, the decrease in arrears was predominantly in the 30 to 59 days and 60 to 89 days delinquent buckets – a trend expected to continue following no rate increases this year.
The Fitch Dinkum 90+ Days RMBS Index (the Dinkum 90+)decreased by 4 basis points to 0.63% in the third quarter of 2011 from 0.67% in the second quarter of 2011. The decrease was in line with expectations.
Thirty day-plus arrears rates for low-doc loans (aimed at the self-employed and charged at higher rates) were at 5.30% at September 2011, down eight basis points from 5.38% in June 2011.
The 90-plus-day low-doc delinquency ratio reached its highest peak since inception in the September 2011 quarter rising to 2.87%, “proving that low-doc borrowers remain under pressure in making mortgage payments”.
Non-conforming low-doc borrowers' 30+ days delinquencies decreased by 198 basis points to 13.85%, returning to December 2007 levels.
Non-conforming low-doc loans are provided for credit-impaired borrowers at a significantly higher rate of interest, and Fitch says the decrease in the September quarter was “primarily due to stable interest rates and the settlement of defaulted loans”.
Total low-doc 30-plus-day delinquencies decreased 18 basis points to 6.37%, down from record highs of 6.74% in the first quarter of 2011.
“Fitch continues to believe that low-doc borrowers captured in the Dinkum Index are more likely to be affected by monetary policy decisions.
“There is the expectation that these borrowers will benefit from the recent rate cuts in the fourth quarter of 2011 and from the general health of the Australian economy,” the latest report says.