Persistently high interest rates, escalating unemployment drive increase
During the fourth quarter of 2023, Australian prime mortgage arrears experienced an uptick, with indications pointing towards a continuation of this trend amidst ongoing challenges such as persistently high interest rates and escalating unemployment, according to S&P Global Ratings.
Mortgage arrears rose to 0.97% in the fourth quarter, up from 0.92% in Q3.
While the majority of borrowers have displayed resilience in maintaining their debt-serviceability, some have resorted to significant adjustments in spending patterns and tapping into savings to meet their obligations, according to the ratings agency’s latest publication, “RMBS Performance Watch: Australia.”
However, the level of pressure faced by households in servicing their debts varies, contributing to the overall low arrears rates observed thus far.
Nevertheless, navigating the final phase of this tightening cycle poses significant hurdles, particularly as savings diminish, unemployment rates climb, and interest rates remain elevated, S&P said. For certain households, relying solely on financial prudence may no longer suffice, potentially leading to a further escalation in arrears in the coming months.
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Despite the rising trend, unemployment rates remain relatively low, which is anticipated to mitigate the extent of arrears increases. Additionally, a moderation in property price growth offers existing homeowners more flexibility in managing their financial challenges independently, thereby helping to temper the rise in arrears.
Moreover, amidst the anticipated difficulties for some borrowers as financial buffers are depleted, a stable employment environment and proactive initiatives by lenders to collaborate with affected borrowers are expected to mitigate disruptions in mortgage markets and curb systemic risks, S&P reported.
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