But arrears may be starting to plateau, report indicates
Australian mortgage arrears have reached their highest level in five years, according to Fitch Ratings’ latest Dinkum RMBS Index report.
In the first quarter of 2024, mortgage arrears of over 30 days rose by nine basis points (bps) quarter-on-quarter to 1.30%, continuing the upward trend from 2023. Early-stage arrears, those that are 30- to 59-day arrears, increased by 3bps to 0.48%, marking the highest rate in this category since February 2016.
Mortgage arrears of over 30 days in Fitch Ratings non-conforming index climbed by 49bps quarter-on-quarter, marking the third consecutive quarterly increase. This surge places non-conforming arrears at their highest level since the beginning of the COVID-19 pandemic.
“Historically, arrears increase in the first quarter due to Christmas spending, but this increase is smaller than in prior years, indicating that arrears may be starting to plateau,” Fitch Ratings stated in its first quarter Mortgage Market Index.
The credit rating agency suggests that persistent inflation and a 4.25 percentage point hike in official interest rates since mid-2022 are likely impacting some borrowers.
Australian home prices rose by 1.6% quarter-on-quarter and 8.9% year-on-year, reaching a new all-time high at the end of the first quarter of 2024. Prices have continued to rise nationally, showing a 3% increase year-to-date by the end of May 2024.
Fitch forecasts a 4% to 6% increase in home prices for 2024, driven by limited housing supply, a tight rental market, and high net migration.
“Losses from the sale of collateral property should also stay low, supported by strong home price growth over previous years for most borrowers,” Fitch concluded.
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