South-west Sydney mortgage borrowers lead RBA's 15 most vulnerable localities

Western Sydney, parts of the New South Wales coast, south-east Queensland and parts of Melbourne are the areas of highest mortgage vulnerability and also where a “higher-than-average share of borrowers are experiencing some degree of financial stress,” says the RBA in its September Financial Stability Review.

It also warns of a rise in arrears in Melbourne due to an oversupply of inner-city apartments.

“According to the 2011 census, the geographic regions that had the highest incidence of potential mortgage vulnerability, as measured by the share of households that had high debt- servicing ratios (DSRs) and were in the lowest 40 per cent of the income distribution, were western Sydney, parts of the New South Wales coast, south-east Queensland and parts of Melbourne,” notes the RBA.

The RBA says that arrears on securitised loans suggest that some of the same regions have a “higher-than-average share of borrowers experiencing some degree of financial stress, although even in these regions, arrears rates have generally declined over the past year “

“They include parts of Sydney’s western suburbs, where arrears rates have been high for some time, as well as regions that rely on tourism, a sector that has been under pressure more recently from the high exchange rate.

“This second group of regions includes areas of Queensland, particularly around the Gold Coast and Sunshine Coast, and some coastal areas of New South Wales and Western Australia.

“Many of the loans in arrears in these regions were originated in the few years leading up to the crisis, when housing prices in these areas were still growing quickly and construction was relatively strong."

The report also warns that arrears rates on housing loans in Victoria, which are currently “quite low” could rise, due to a “potential oversupply of property in some segments, particularly inner-city Melbourne apartments and houses at the south-eastern fringe”.

“Overall, the Melbourne residential property market has been experiencing below-average auction clearance rates and a run-up in the stock of land for sale at the same time as actual sales fell; these factors could weigh on prices in the future.”

However, the report also notes that the risk profile of new housing loans has been lower in recent years compared with the earlier period of strong growth in household borrowing.

“Lending standards are tighter now than prior to the financial crisis, and liaison with the major banks indicates that they have been broadly unchanged over the past six months.

“The share of bank lending that is low-doc remains low, at less than 2% of banks’ loan approvals and around 5% of outstanding housing credit."