Australian prime home loan arrears rose in January

Australian prime home loan arrears rose in January, according to a recently published report by S&P Global Ratings.

The Standard & Poor's Performance Index (SPIN) for Australian prime mortgages rose to 1.45% in January, up from 1.38% in December.

The increase however was down from its December to January hike 12 months ago.

Mortgage arrears are generally at their peak in January, following spending over the Christmas and summer holiday months.

The Northern Territory's SPIN is the highest at 3.16%, having seen the highest increase over January (+0.39%).

Western Australia's SPIN follows, up 0.21% to 2.94%.

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Tasmania was the only state to see its arrears fall in January, from 1.12% to 1.10%.

Investor loans recorded a larger increase in arrears than owner-occupier loans, rising to 1.40% in January from 1.27% in December.

Owner-occupier arrears are still higher than investor arrears. Their 0.09% rise in January took them to 1.69%.

S&P suggest the increases might reflect the ongoing transition from interest-only to principal and interest repayments, which is more common for investor loans.

"We expect refinancing pressures to continue in the current environment of tightened lending conditions. High household indebtedness increases borrowers' sensitivity to changing economic conditions and interest-rate movements," the S&P report stated.

"This vulnerability is greater for borrowers with weaker credit attributes, such as those with high loan-to-value ratio loans. Exposure to loans with higher credit risk is not material in most RMBS portfolios and is unlikely to put any significant pressure on arrears in the short to medium term while employment conditions remain stable.