Delinquent Aussies reach all-time high

Looks like the Aussies are on a very tight budget.

Fitch Ratings said today that 30+ days delinquencies in the Australian prime RMBS sector reached a record high of 1.79% in Q111, up 42bp from Q410. Christmas spending, the Queensland floods and the November 2010 interest rate rise all adversely impacted borrowers' serviceability. Fitch believes that the factors that have impacted mortgage performance in Q111 will be more or less temporary and an adjustment in the next quarters is likely, although dependent on any changes in monetary policy as well as any increase in cost of living.

"Mortgage performance was expected to worsen in Q111, driven mainly by the usual impact that the Christmas spending and holidays have on first quarter mortgage performance. The increase in arrears is however higher than expected. The 25bp November 2010 interest rate hike and the Queensland floods have also affected borrowers' serviceability," said James Zanesi, Associate Director in Fitch's Structured Finance team. "Delinquency levels are still low however, and remain within Fitch's assumptions. Arrears are also expected to stabilise in either Q211 or Q311 as the impact of the Christmas spending is usually temporary. Any further interest-rate rises, as well as recent increases in the cost of living, might however put mortgage performance under more long-term pressure," added Mr. Zanesi.

Fitch notes in particular that 30-59 days arrears have increased to 0.79% in Q111 from 0.58% in Q410, contributing to the rise in 30+ days arrears. The natural disasters that affected some parts of Australia early in 2011, such as the floods in Queensland and Victoria and cyclone Yasi, have also contributed to the rise in arrears, especially in the 30-59 days bucket. Borrowers affected by these events may fall behind in their scheduled payments while requesting or receiving financial help. Moreover, the decision in November 2010 by the Reserve Bank of Australia (RBA) to increase the policy interest rate by 25bp to 4.75% has also contributed to mortgage arrears in Q111, as it typically takes at least two months for interest-rate decisions to feed through to the Dinkum Index.

Fitch's low-doc Dinkum Index shows that 30+ days delinquency rates in low-doc pools have increased to 6.74%, the highest to date, above the previous peak of 6.70% recorded in January 2009 during the global financial crisis, representing a 104bp increase from 5.70% in Q410. Fitch notes that 30+ days delinquency rates in prime/conforming low-doc pools, which represent 89% of the Index by volume, have also again increased to 5.45% in Q111, up 139bp from the previous high of 4.06% in Q410. This indicates that more susceptible borrowers, such as low-doc or self-employed borrowers, remain under financial pressure when making mortgage payments. In particular, it is likely that the Queensland floods have reduced the serviceability of self-employed borrowers more than salaried households.

Covering four categories of delinquencies (30 to 59 days, 60 to 89 days, 90+ days and 30+ days) for full-documentation loans and low-documentation loans (both conforming and non-conforming), as well as claims against lenders' mortgage insurance, the Dinkum report enables market participants to compare the performance of Australian mortgages and monitor trends in the market.