Australian borrowers remain world beaters on mortgage management as arrears fall further in July: Moody’s

Australian borrowers remain world beaters on mortgage management as arrears fall further in July: Moody’s
Larry SchlesingerDecember 8, 2020

The percentage of Australian borrowers more than a month behind on their mortgage repayments fell for the second consecutive month in July following the RBA cash rate cuts in May and June, with the proportion of Australian borrowers at risk of defaulting on their mortgages well below that of other first-world economies, according to global credit rating agency Moody's.

Moody’s expects the arrears rate to hold steady for the remainder of the year following Tuesday’s rate cut.

The delinquency rate for mortgages more than 30 days in arrears in the Australian prime residential mortgage market was 1.61% in July, down from 1.66% in June and 1.67% in May.

A year ago the 30-day-plus arrears rate was 1.64%.

The biggest fall was the in the 30 to 60 days in arrears basket, which dropped from 0.74% to 0.66%, a month-on-month decline of 10%.

However, those borrowers more than three months behind in their mortgage payments increased from 0.63% to 0.66% – a rise of nearly 5%. 

Australian Prime RMBS

 

 

 

 

 

 

 

MTM

 

YOY

Jul-12

Jun-12

% Change

Jul-11

% Change

30-60 days

0.66%

0.74%

-10.2%

0.71%

-5.8%

60-90

0.29%

0.29%

0.2%

0.30%

-1.9%

90+ days

0.66%

0.63%

4.9%

0.63%

3.9%

Source: Moody’s

Putting this into an international context, the US has a 60 days or more arrears rate of 6.57% – six times higher than Australia (0.95%)

One of the worst-performing housing markets is Ireland, which has a 60 days or more arrears rate of 17.22% – meaning nearly one in five borrowers are at risk of default.

Another basket case economy, Greece, has more than doubled its 60-day-plus arrears rate from 2.38% in August 2010 to 5.37% in August 2012.

Japan has a 60-day-plus arrears rate of 0.21%.

 


 

"We believe the rate of arrears will hold steady in 2012 because of the recent cuts in interest rates and our expectation that GDP growth will remain robust at 3.8% in 2012," says Jennifer Wu from Moody’s.

"Given that the benefits of economic growth and low interest rates will not be felt equally across all sectors, certain regions, such as those dependent on tourism and retail, which are under pressure due to the strong Australian dollar, will see a rise in arrears.

“But, Moody's expects this trend to be offset by the decline in arrears in other regions," she adds.

The arrears rates are calculated based on the performance of loans packaged and sold to investors as residential mortgage-backed securities – also known as securitisation.

There was also an improvement in low-doc arrears rates (30 days or more), which improved from 5.72% to 5.52%.

The performance of non-confroming loans provided to credit-impaired borrowers at higher interest rates also improved from 12.47% to 11.33%. 

Australian Non-Conforming RMBS

 

 

MTM

 

YOY

Jul-12

Jun-12

% Change

Jul-11

% Change

30-60 Days

3.85%

4.72%

-18.4%

4.22%

-8.8%

60-90 Days

2.57%

2.18%

17.9%

2.79%

-8.1%

90+Days

4.91%

5.58%

-12.0%

5.39%

-8.9%

Source: Moody's

Non-conforming mortgage arrears rates peaked at 17.44% in January 2009.

The Moody’s research shows the extent of the decline of this source of funding since the GFC.

In 2007, just before the GFC froze securitization markets, Moody’s rated 75 tranches of residential mortgage-backed security deals sold to institutional investors. There were 20 tranches rated by Moody’s in 2008 and just eight in 2009.

For the first seven months of 2012 Moody’s has rated just 12 tranches.

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

Editor's Picks