Australia mortgage arrears continue to rise as housing stress builds

Fitch Rating report released on Thursday showed that Australian mortgage arrears increased 16 basis points to 1.11 percent in the first quarter of 2016, but remain low compared with the 1.75 percent peak in March 2011. Fitch rating agency said that the rise was due to seasonal Christmas spending, rising standard variable rates and a low real-wage growth. It expects arrears to fall over the next two quarters once the effect of Christmas spending fades and the May 2016 interest rate cut starts benefiting borrowers.

Fitch adds the strong housing market, low unemployment-rate and low-interest-rate environment create favorable conditions for mortgage performance, but a sudden change in employment conditions or negative real-wage growth poses a major threat.

A seperate release by Standard & Poor's on Tuesday showed an increase in the number of home loan arrears across prime residential mortgage-backed securities for the seventh consecutive month last May. The ratings agency's prime performance index, SPIN, rose to 1.21 percent in May from 1.14 percent the previous month and 1.07 percent a year earlier.

Report showed that the major banks' 90 day-plus arrears rose by four basis points to 0.48 percent while non-banks fell a point to 17 basis points. S&P's arrears report comes after the agency has put the major banks' credit rating on negative watch for a potential downgrade, right after downgrading Australia's sovereign AAA rating due to the uncertainty of government support.

Meanwhile, regulators continue to tighten banking regulation to ensure stronger lending standards after a four-year property price boom in Sydney and Melbourne. Just last week, ANZ tightened mortgage lending policies for security guarantees, limiting leverage that family members can take on to assist property purchases.