Fitch: Australian Mortgage Arrears at Decade Lows in 3Q15

In its report released today, Fitch Ratings says Australian mortgage arrears have reached a decade low after declining 18bp to 0.91% during 3Q15. Two-thirds of the improvement was due to the inclusion of AUD8.7bn worth of new issuance from 1Q15. Fitch's Dinkum Index would still have reached a decade low, even after removing the impact of these transactions.

House prices in Australia's capital cities have strengthened 11.02% yoy to September 2015 and have had a two-fold impact on mortgage performance. Strong house prices have enabled borrowers to sell their properties to cure arrears, reducing the 90+ days to 0.41% - the lowest level since February 2006. Additionally, prices served to reduce principal losses on sale, maintaining the annualised loss rate unchanged qoq at a low 0.02%.

Self- employed borrowers continue to experience financial difficulties; Low-Doc 30+ arrears increased to 6.97% in 3Q15 from 5.72% in 2Q15. This is despite serviceability factors being as a good as it gets with stable unemployment over the quarter, a low stable cash rate and standard variable rate, and low CPI.

Fitch believes material improvements in 2016 are unlikely and in the current borrower environment, arrears can be attributed to factors outside the economy such as divorce, extraordinary expenses and illness.

Fitch's Dinkum RMBS Index tracks the arrears and performance of the mortgages underlying Australian residential mortgage-backed securities (RMBS).

Current and historic Dinkum Index data is available in excel form for reference through the full report entitled, 'The Dinkum RMBS Index - 3Q15', available at www.fitchratings.com.