Borrowers are strained by ongoing inflation and interest rate hikes
Australian mortgage arrears have reached their highest level in a decade, according to Fitch Ratings’ latest Dinkum RMBS Index report.
The 30-day-plus mortgage arrears increased by two basis points quarter-on-quarter to 1.31% in the second quarter of 2024, marking the seventh consecutive quarterly rise. However, early-stage arrears fell by eight basis points to 0.40%, suggesting arrears could begin to stabilise in the coming months.
In addition, arrears in Fitch’s non-conforming index climbed by four basis points quarter-on-quarter, the fourth consecutive increase, bringing non-conforming arrears to their highest point since the onset of the Covid-19 pandemic in 2019.
“Higher arrears across both the conforming and non-conforming indices indicate that borrowers are affected by persistent inflation and the 4.25 percentage point hike in official interest rates since mid-2022,” Fitch Ratings stated in its second quarter Mortgage Market Index.
Despite the arrears, Australian home prices rose by 1.8% quarter-on-quarter and 8.1% year-on-year, reaching a new high by the end of the second quarter of 2024. Since then, prices have continued to climb, recording a 4.9% increase in the year to the end of September 2024.
The credit rating agency expects home prices to rise by 4% to 6% in 2025, driven by limited housing supply, a tight rental market, and strong net migration. Losses from the sale of collateral properties are also expected to remain low, supported by robust price growth over recent years.
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