Mortgage delinquencies have increased across the country during 2010 due to higher interest rates and a stabilisation in prices, and stress will continue during 2011 as rates increase, a new report from Fitch Ratings claims.
However, the report author also says the overall amount of delinquencies to come in 2011 will not disrupt the market, and says that as long as employment remains high defaults will stay in check.
“There really is no comparison with the Australian market and other markets such as Britain and the United States,” report author James Zanesi says. “Their delinquencies are much, much higher than ours and for different reasons.”
The report shows delinquencies increased across all six states in Australia, with 1% of borrowers one month or more behind their scheduled balance as of September 2010. Delinquent borrowers tend to be in arrears on higher-than-average outstanding loan balances, the report says.
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Overall, 30+ day delinquencies in Australia are now at 1.54%, compared to 1.56% in March 2010 and 1.23% in September 2009.
Those areas that have been traditionally labelled as the “worst performing areas” recorded the largest increase in delinquencies, with South Western Sydney, the Central Coast, the Gold Coast and the south-west region of Western Australia the areas with the highest delinquencies.
The Fairfield-Liverpool area in Sydney is the worst performing area with a delinquency rate of 2.81%, while Nelson Bay is the worst performing postcode with a ratio of 8% by dollar amount and 3.3% of loans in arrears.
Budgewoi in New South Wales, Mandurah in Western Australia, Casuarina in Western Australia, Richmond in New South Wales and Helensvale in Queensland are among the worst performers.
The top 10 worst regions by value were:
1. Fairfield Liverpool – NSW (2.81%)
2. South West WA – WA (2.8%)
3. Central Coast Sydney – NSW (2.74%)
4. Blacktown – NSW (2.65%)
5. Outer Western Sydney – NSW (2.56%)
6. Outer South Western Sydney – NSW (2.42%)
7. Gold Coast East – QLD (2.26%)
8. Hunter – NSW (2.08%)
9. South West Metro Perth – WA (2.07%)
10. East Metropolitan Perth – WA (2.03%)
The top 10 worst regions by postcode were:
1. Fairfield-Liverpool – NSW (1.76%)
2. Blacktown – NSW (1.69%)
3. Central Coast Sydney – NSW (1.67%)
4. Outer Western Sydney – NSW (1.61%)
5. Outer South Western Sydney – NSW (1.6%)
6. South West WA – WA (1.45%)
7. North West NSW – NSW (1.42%)
8. Logan City – QLD (1.39%)
9. Melton-Wyndham – VIC (1.36%)
10. Gold Coast East – QLD (1.35%)
Western Australia is the worst performing state at 1.95%. Queensland’s Surfers Paradise is the worst performing postcode by value with 4.3% of mortgage balances in arrears.
Zanesi says the increase in delinquencies can be attributed to two factors – rising interest rates and a stabilisation in process.
“One difference that we can see, is that since the last report, interest rates have risen. We saw consecutive interest rate rises in the fourth quarter of 2009, and that had a strong impact in the beginning of this year.”
“We were able to monitor regions that were sensitive to interest rate movements, so you see for example in the western part of Sydney, or in the southwest of Western Australia, they have experienced the highest increase in arrears.”
The data shows the South West WA region recorded a 30+ day 2.82% delinquency rate, with Western Sydney recording a 1.82% rate.
“You also see in the last three months that regions have been impacted by an increase 90+ day arrears, meaning delinquencies that have already missed more than three payments and are close to default.”
“These areas, which are particularly low income and have shown interest rate sensitivity, are very sensitive to more rises. And we are going to see some interest rate shock in these areas and borrowers will start missing payments.”
Zanesi also points out the stabilisation in prices has also impacted arrears. “It’s hard to sell properties in this type of environment. And we might see more of that as well.”
But despite the rising delinquencies, Zanesi says the report doesn’t indicate that the housing market will collapse, even with more interest rates to come. In fact, he says the market will remaining fairly strong.
“The market will continue to perform very well because the unemployment rate hasn’t deteriorated so much. We’ve seen an improvement in employment this year, and that will stay overall at low levels… which will mean delinquencies will be kept in check.”
Top 10 best performing regions by value:
1. Boroondara City – VIC (0.27%)
2. Northern Middle Melbourne – VIC (0.66%)
3. Lower Northern Sydney – NSW ( 0.68%)
4. Inner Melbourne – VIC (0.69%)
5. ACT – ACT (0.71%)
6. Northwest Inner Brisbane – QLD (0.77%)
7. Northwest Outer Brisbane – QLD (0.84%)
8. Southern Melbourne – VIC (0.84%)
9. Western Melbourne – VIC (0.88%)
10. Mornington Peninsula Shire – VIC (0.92%)
Top 10 best performing regions by postcode:
1. Boroondara City – VIC (0.20%)
2. Lower Northern Sydney – NSW (0.39%)
3. Inner Melbourne – VIC (0.44%)
4. ACT – ACT (0.44%)
5. Northern Middle Melbourne – VIC (0.46%)
6. Northwest Inner Brisbane – QLD (0.47%)
7. Southeast Inner Brisbane – QLD (0.49%)
8. Southern Melbourne – VIC (0.54%)
9. Inner Brisbane – QLD (0.56%)
10. Northern Beaches – NSW (0.60%)