Australian mortgage delinquencies reached a record high in Q1, primarily attributed to Christmas spending, a November interest rate hike and the recent natural disasters, according to London-based Fitch Ratings.
Mortgages that are more than 30 days overdue increased to 1.79 percent of the nation’s residential mortgage backed securities in the quarter ended 31 March, from 1.37 percent in the previous quarter. The number of “low-doc” loans more than 30 days late rose from 5.7 percent to a record 6.74 percent, said the report.
“A rise in arrears was expected, given the usual seasonal negative impact,” said James Zanesi, Associate Director for structured finance at Fitch.
“Fitch, however, did not expect arrears to increase to this extent,” he added.
The increasing interest rates are keeping home buyers on the sidelines, even as the number of properties listed for sale continues to rise, driving home prices lower in Q1 by the most since 2008. Moody’s Investors Service had reduced its ratings on Australia’s four largest banks in the previous week.
Meanwhile, borrowing for mortgages increased by 6.6 percent in March 2011, the lowest percentage since the central bank figures were first revealed. Fitch has warned that it could reduce the lenders’ ratings if they lower standards to increase sales.
While the number of overdue loans is likely to drop slightly in Q2 and Q3 as the impact of the floods and seasonal spending disappears, this could be offset by more interest-rate rises and the recent increase in the cost of living, Mr. Zanesi said.
Market traders believe there is a 60 percent possibility that the central bank will continue increasing interest rates by year’s end, raising the benchmark rate by a quarter of a percentage point to five percent, after pausing for six months.
However, the Australian RMBS market will remain stable and delinquency levels will become lower compared with other countries, according to Mr. Zanesi.
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