Borrowers in Western Australia are 20 per cent more likely to fall behind on their mortgages, according to S&P Global Ratings, which found home loan arrears rose in the December quarter and are likely to worsen.
While overall major bank arrears remain low – averaging 0.91 per cent of loans across the economy – the Reserve Bank’s 13 interest rate increases and its 4.35 per cent cash rate are starting to bite. Roy Morgan, in a separate report yesterday, found a record high 1.6 million people, or 31 per cent of borrowers, are at risk of mortgage stress.
‘‘The last leg of this tightening cycle could prove to be the most challenging, as savings are depleted, unemployment rises, and higher interest rates continue,’’ S&P Global Ratings said.
‘‘Financial prudence might no longer be enough for some households, leading to further increases in arrears in the months ahead.’’
At its interim results this month, Commonwealth Bank said it was supporting more than 7000 home loan customers in formal ‘‘hardship’’, including providing options to suspend mortgage repayments or to move to interest-only repayments.
That came as CEO Matt Comyn indicated that the first official rate cuts might not materialise until next year.
Borrowers who are not making repayments appear to be staying in their homes for longer than in past economic cycles, as banks seek to minimise the scrutiny that comes with calling in their loans, says Field Research director Stewart Oldfield.
In the biggest markets of NSW and Victoria, mortgage arrears are stable. In NSW, the proportion of borrowers more than 30 days late on repayments was 0.96 per cent in December from 0.94 per cent in July 2023 and 1.01 per cent in November.
But in WA, more borrowers are behind: 1.19 per cent are more than a month overdue, although this had improved from 1.50 per cent in July last year. The best performing state is Tasmania, at 0.48 per cent.
CBA this month said official rate rises were being unevenly felt, as savings were depleted faster for younger borrowers. Savings of customers aged between 25 and 34 were down 2.4 per cent year-on-year and for the 35 to 44 band, savings were 2.1 per cent lower. They rose for over 65s by 6.5 per cent.
Roy Morgan said the number of mortgage holders considered ‘‘at risk’’ of mortgage stress had surged to a record on the back of the Melbourne Cup Day rate rise in November. The 1.6 million at risk – defined as borrowers who allocate between 25 per cent and 45 per cent of their after-tax income to repayments – has increased by 802,000 since May 2022, when the RBA began tightening.
If the central bank raises rates by a further 0.25 percentage points next month, this will push a further 16,000 borrowers into the risky category, the group estimates.
The number of mortgage holders considered ‘‘extremely’’ at risk – allocating more than 45 per cent of their income – is now almost 1 million, or 19.8 per cent of borrowers. The average over the past decade is 14.3 per cent.
NABank last week said its quarterly cash earnings had dived by 16.9 per cent amid an economic slowdown, reflected in rising mortgage arrears and a $193 million impairment charge.