Mortgage arrears have been on the rise since hitting a low point during the COVID-19 pandemic. According to Tim Lawless, the executive research director Asia Pacific at CoreLogic, arrears have increased from 1% in Q3 2022 to 1.6% in March 2024, the highest level seen since Q1 2021.
One of the main reasons for this increase in arrears is the rise in non-performing loans, which now stand at 0.93%. Non-performing loans are those that are at least 90 days past due or are not expected to collect the full amount due. Lawless noted that the non-performing arrears rate is now slightly higher than it was at the start of the pandemic.
The sharp increase in the cost of debt has also played a significant role in the higher mortgage arrears. Average variable interest rates on home loans have jumped from 2.86% in April 2022 to 6.39% in March 2024, leading to much higher repayments for borrowers. This, coupled with rising living costs, has put pressure on household incomes.
Despite these challenges, most borrowers have been able to maintain their repayments by dipping into savings, increasing their work hours, or reducing contributions to mortgage offsets. Lawless mentioned that the majority of borrowers have stayed on track with their home loan repayments.
Looking ahead, it is expected that mortgage arrears will continue to increase as unemployment rates rise and household savings diminish. However, a significant spike in arrears is not anticipated unless the labor market weakens more than predicted.
The low levels of mortgage arrears can also be attributed to the strong underwriting standards set by Australian lenders and the prudential regulator, APRA. Borrower serviceability is assessed at a mortgage rate 3 percentage points higher than the actual loan product rate, ensuring that borrowers can afford their repayments.
In conclusion, while mortgage arrears have been rising, the situation is manageable for now. It is crucial for borrowers to stay on top of their repayments and seek support if needed to avoid falling further behind. By keeping a close eye on their finances and seeking assistance when necessary, borrowers can navigate through these challenging times successfully.