Western Australian home loan arrears worsening: S&P

Australian prime home-loan arrears rose again in April, according to a recently published report by S&P Global Ratings.

The Standard & Poor's Performance Index (SPIN) for Australian prime mortgages, rose to 1.53% in April from 1.51% a month earlier. Arrears in April were up 17 basis points year on year.

Arrears were mostly up nationwide. The Australian Capital Territory was the only place to record a decrease in arrears during the month, falling 0.11%.

Western Australia and Queensland recorded the largest month-on-month increases, rising to 3.10% and 1.94%, respectively.

Around 35% of loans in Australian residential mortgage-backed securities (RMBS) portfolios are domiciled in Queensland and Western Australia.

Investor arrears rose to 1.52% in April from 1.46% a month earlier and owner-occupier arrears reached 1.76%, up from 1.73% a month earlier.

Investor arrears have increased at a faster rate than owner-occupier arrears this year.

This could partly reflect the repayment shock of interest-only loans converting to amortizing loans.

Interest-only periods are more common among investor loans. Around 30% of the loans in Australian RMBS prime and nonconforming portfolios are for investment properties.

"Most of the increase has been for loans more than 90 days in arrears," the report authors stated.

"Recent rate cuts will help with debt serviceability, but we expect it to make more of a difference in the earlier arrears categories.

"Borrowers who are deeper in arrears are more likely to struggle due to the diminished refinancing prospects in the current lending environment."