Interest rate cuts helping a fall in home loan arrears: S&P Global

Interest rate cuts helping a fall in home loan arrears: S&P Global
Staff reporterDecember 7, 2020

Australian prime home-loan arrears fell in August, according to S&P Global Ratings' recently published RMBA arrear statistics for Australia.

The Standard & Poor's Performance Index (SPIN) for Australian prime mortgages declined to 1.41% in August from 1.49% a month earlier.

They found that while arrears typically fall at this point in the annual cycle, the magnitude of the decline in August suggests that interest-rate and tax cuts are filtering through to arrears.

Mortgages 30-60 days in arrears accounted for most of the improvement in August. This indicates that stronger refinancing activity has enabled more borrowers to self-manage their way out of arrears and shop around for cheaper home loan rates.

Arrears fell in all states and territories nationwide, with Western Australia recording the largest decline, slipping to 2.75% in August from 2.91% in July. Mortgage arrears levels improved for all lenders, with regional banks recording the largest improvement, falling 29 basis points to 2.18% in August.

S&P Global experts said, "we expect arrears to continue to trend lower in the short term as the most recent rate cuts start to filter through."

"Consistent with what we have observed to date, these improvements are likely to come in the earlier arrears categories, which are more sensitive to interest-rate movements."

"We expect longer-dated arrears to remain elevated in a softer economic environment," they concluded.

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