Further arrears decline expected this year as interest rates ease
Mortgage arrears have continued to fall despite ongoing financial pressures, with home values expected to rise by as much as 6% over the next year, according to new analysis.
Fitch Ratings’ latest Dinkum RMBS Index for the fourth quarter of 2024 found that the proportion of mortgages overdue by more than 30 days fell by seven basis points quarter-on-quarter to 1.13%. This follows a similar decrease in the previous quarter.
The report noted that, without the inclusion of newly originated loans — which typically carry lower arrears — the 30-day arrears rate for standard loans would have edged up to 1.21%.
“Non-conforming arrears fell by 32 basis points quarter-on-quarter, but would have risen by 19 basis points without the new transactions,” Fitch said.
The Reserve Bank of Australia (RBA) reduced the cash rate by 25 basis points in February to 4.1%, marking the first cut since late 2020. Fitch expects two more cuts this year, which it said could contribute to further declines in mortgage arrears.
Despite a slight 0.3% dip in home values during the final quarter of 2024, annual growth reached 4.8%. Prices have continued to edge up in early 2025 and are forecast to rise by 4-6% this year.
The report also noted that strong housing price growth is likely to keep property-related losses low for most borrowers.
However, loans originated in 2023 are showing elevated stress. Fitch reported that 30-day arrears for this cohort reached 1.2% one year post-settlement, compared to the 0.5% average for earlier years.
The Urban Development Institute of Australia (UDIA) has recently warned of a worsening housing supply gap. In its State of the Land Report 2025, the organisation forecast that the federal government’s target of building 1.2 million homes by 2029 will fall short by nearly 400,000.
Looking ahead, UDIA forecasts a decline in new housing completions this year across all major cities except Perth, with further drops expected in 2026.
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