Small rise in home mortgage arrears rate in March blamed on Christmas holiday spending

The percentage of home owners a month or more behind on mortgage repayments lifted from 1.44% in December to 1.66% at the end of March, according to Moody’s Investors Services.

This was marginally above the 1.59% of borrowers 30 days or more behind in mortgage repayments in March 2012.

The increase was consistent across all mortgage providers, says Moody's.

The arrears rate for the major banks rose to 1.39% in March from 1.16% in December, while for the regional banks, it rose to 1.87% from 1.65%, and for non-authorized deposit-taking institutions (ADIs), it rose to 3.46% from 3.24%.

Despite the increase, Australian mortgage arrears rates are very low by international standards.

The US 30-plus days mortgage arrears rate was 6.21% in April, according to the First Look report prepared by Lender Processing Services.

The UK arrears rate was 2.5% in April, according to the Council of Mortgage Lenders.

Moody's  attributed the rise in the Australian mortgage arrears rate to seasonal factors, that is the fallout from higher discretional spending over the Christmas and New Year holiday period.

However, the increase in the arrears rate also lifted despite a cut in interest rates.

In December the RBA cut the cash rate by 25 basis points to 3% with most of this passed on to borrowers.

Moody’s expect the arrears rate to decrease in the second half of the year.

Borrowers will also be assisted by the May 25 basis point rate cut with most lenders passing this on in full.

Arrears rates improved among borrowers with lower credit ratings.

The low-doc arrears rate fell from a record high of 6.24% in January to 5.83% in March.

"Borrowers in low-doc deals provide little or, in the case of no-doc loans, no proof of income. Moody's considers that the higher delinquency rate of these loans can be explained by the cash flow volatility of the borrowers, who are typically self-employed," says Moody's.

"After excluding 100% low-doc deals, the prime 30-days plus arrears rate would have been much lower at 1.60% in March."

The non-conforming 30-days plus arrears rate rose to 7.85% in March from 7.39% in December, and was 85 basis points lower than March 2012 when it was 8.70%.

Moody’s figures are compiled based on the performance of securitised loans, that is loans packaged into residential mortgage-backed securities (RMBS) and sold to investors.

The worst performing 2004 vintage incurring 36 basis points of losses to date.

"To date, lenders mortgage insurance has covered the majority of these losses, with any residual covered by excess spread or by the lender," says Moody's.