Home loans in arrears by more than 30 days increased across all borrower categories during the December 2009 quarter, Fitch said in a report released on Monday. According to Fitch, more and more people will not be able to pay back their home loans in 2010 as borrowers battle rising interest rates and Christmas-induced credit card bills.
Arrears on mortgages held by non-conforming, low-documentation borrowers spiked more than 50 per cent on the September quarter as the impact of three consecutive interest rate rises kicked in.
Non-conforming borrowers represent a small portion of the mortgage market and, as expected, they were the first to be hit by the interest rate hikes, associate director of Fitch structured finance RMBS (residential mortgage-backed securities) team, Leanne Vallelonga said.
“Further deterioration is expected.”
Further interest rate hikes, combined with continued global instability and the risk of rising unemployment in Australia, were expected to push arrears higher in 2010, Fitch said.
Christmas seasonal credit card spending is also expected to add pressure to arrears outcomes, the agency said.
However, Fitch said it did not expect an excessive rise in arrears, nor any impact on the overall ratings of local RMBS transactions.
Prime conforming mortgages make up the vast majority of mortgages in Australia, and arrears over 30 days declined by 0.02 per cent in the December quarter to 1.19 per cent – a result that was skewed by five RMBS transactions.
After stripping out the effect of these deals, the proportion of arrears rose by 0.02 per cent to 1.23 per cent, Fitch said.
Borrowers who took out their loans before the global financial crisis hit may find it easier to meet interest payments, Fitch said.
Those borrowers survived through a much higher interest rate cycle than was expected in 2010, paying an average standard variable interest rate of 9.6 per cent in March 2008 when the cash rate peaked at 7.25 per cent.
A rebound in property prices in the second half of calendar 2009 drove an improvement in arrears beyond 90 days as lenders’ ability to sell properties improved, Fitch said.