Fitch expect mortgage arrears to rise in current quarter, but stay low

Australia's 30 plus days mortgage arrears in 1Q21 were up by only 4bp to 1.05 percent on the previous quarter, with Fitch Ratings expecting a bigger rise in the current quarter, after the payment deferral period ended on 31 March. Fitch's Dinkum RMBS Index tracks arrears and performance of mortgages underlying public Australian prime RMBS. The update advised RMBS transactions losses from the sale of collateral property were the lowest since the 2007-08 global financial crisis, with lenders' mortgage insurance payments and excess spread being sufficient to cover principal shortfalls in all transactions. Fitch expects losses to stay low due to a recovering economy and strong home-price growth. However Fitch Ratings expects the Dinkum RMBS Index to rise in the next quarter, as the payment deferral period ended on 31 March 2021 and government pandemic-related support measures, such as JobKeeper, have been rolled back. "The recovery in home prices remained strong, with Australia's eight capital cities recording the highest quarterly increase in more than a decade of 5.6%," it noted. Prices were up by 4.8% yoy, as all capital cities registered positive growth, some at double-digits. Fitch expects prices to continue to increase, supported by record-low mortgage rates, a recovering economy and government incentives for housing, particularly for first-home buyers.