Aussie Mortgage Arrears Rise To Record-High In May

Source : The Business Times, July 24, 2008

Late repayments on prime loans increase for sixth consecutive month

(MELBOURNE) Australia's mortgage arrears rate rose to a record in May as home owners struggle to meet loan repayments which have surged with the highest interest rates in 12 years, according to Standard & Poor's.

Payments more than 30 days late on so-called prime loans increased for a sixth consecutive month in May, gaining one basis point to a record 1.49 per cent of mortgages used to secure bonds from a month earlier, S&P said yesterday in a statement. A basis point is 0.01 percentage point.

'Mortgage lenders have increased their lending rates, independent of official rate rises, due to the ongoing high cost of wholesale funding,' analysts led by Vera Chaplin said in the report. 'This has meant that there has been no relief to borrowers in recent times.'

Australia's central bank has increased its benchmark lending rate four times since August to 7.25 per cent to cool the fastest inflation in 17 years.

Banks, trying to offset higher funding costs, have raised interest rates even faster at a time when housing affordability is at a three-decade low.

Arrears on sub-prime and nonconforming loans in residential mortgage-backed securities, as measured by S&P's SPIN index, fell to 14.52 per cent in May from 14.62 per cent in March. This rate may increase in coming months, Ms Chaplin said.

'If the economy slows and living costs continue to rise, then it is likely that Australian borrowers will be put under more stress,' she said in the report.

Standard & Poor's Mortgage Performance Index measures the weighted-average arrears more than 30 days past due on residential mortgage loans on both publicly and privately rated Australian mortgage-backed bond transactions. -- Bloomberg