Australian Property News

Rise in mortgage delinquencies not too concerning

Posted on Friday, March 18 2011 at 11:13 AM

Higher interest rates and increased holiday spending led to a rise in mortgage delinquencies in the fourth quarter of 2010, according to a new Fitch report.

Thirty-plus day delinquencies increased to 1.37 per cent, up from 1.3 per cent in the third quarter, which the company says was "unexpected".

Ninety-day arrears also increased from 0.48 per cent in the third quarter to 0.54 per cent in the fourth quarter of 2010.

Delinquencies are expected to increase further due to the natural disasters in Queensland but Fitch structured finance associate director James Zanesi says the situation should stabilise in the next few months as the current interest rate environment provides a haven for financially stretched borrowers.

There's no reason to think rates will rise soon, he says.

The number of arrears overall is still relatively low, according to Zanesi, and he points out that the arrears being recorded are by those already in financial difficulties.

The hardest hit mortgage holders were those with low doc loans – specifically the self-employed, according to the Fitch report.

"To simplify the report, I'd say it's a combination of income issues and affordability," says Zanesi. "The low doc mortgages are a good proxy to understand how people are performing and that suggests people such as the self-employed are having issues."

"The issue is not so much about employment, but about income and the ability to meet payments."