Home loan arrears fall in October

Australian prime home-loan arrears fell in October, according to S&P Global Ratings' recently published RMBS Arrears Statistics: Australia.

The Standard & Poor's Performance Index (SPIN) for Australian prime mortgages decreased to 1.07% in October from 1.12% a month earlier.

The SPIN for Australian nonconforming mortgages also dropped in October, falling to 3.22% from 3.36% the previous month.

Low interest rates and competitive refinancing conditions are closely correlated with decreasing arrears because they help ease debt-serviceability pressures, S&P advised.

It noted the level of loans under mortgage-deferral arrangements continues to fall as the gradual reopening of state economies enables more borrowers to resume repaying their mortgages.

"We believe mortgage deferral levels began to plateau in November because many arrangements were due to expire in October.

"Borrowers still under mortgage-deferral arrangements beyond October were likely granted an extension by lenders, following an assessment of the borrowers' capacity to resume mortgage repayments.

"The level of loans under mortgage-deferral arrangements after November therefore will provide more meaningful insights into the genuine levels of debt-serviceability pressures in the wake of COVID-19.

"We believe lenders will not want to rush into foreclosure processes at the end of mortgage-relief periods, choosing instead to work with borrowers by restructuring loans and moving them into formal hardship programs."

It expects borrower defaults to increase in 2021, but losses will be tempered by a recovery in property prices and the relatively modest loan-to-value (LTV) ratio profile of the broader RMBS sector and its limited exposure to negative equity and high LTV loans.

S&P Global Ratings does believe there remains a "high degree of uncertainty" about the evolution of the coronavirus pandemic.