Homeowners aren’t keeping up with mortgage payments

Fitch released its latest Australian mortgage delinquency by postcode report in March, showing that the overall delinquencies across Australia increased to 1.45% in 1Q13, from 1.2% in 3Q12 however it remains below the five year average of 1.53%. The study covered approximately 909,500 mortgages across all states for an amount equivalent to A$170bn. According to Fitch, holidays and Christmas spending as well as the increased cost of living were the main disruptions of borrower’s ability to pay for their mortgages despite the low interest rate environment. The report stated that the cash rate cut by the Reserve Bank of Australia in the end of 2012 did not have any positive impact on mortgage performance in the six months to end March 2013. The difference in delinquency rate between the worst and the best performing state appeared to be minimal of 29bps, the lowest divergence since 2007. New South Wales and Queensland appeared to be the worst performing states both with the highest delinquency rate of 1.58%.

According to Fitch, Nelson Bay (NSW) that includes Corlette, Fingal Bay and Shoal Bay remained at the top of 20 worst performing suburbs by value of mortgages in arrears, with 6.6% of mortgages secured by a property delinquent at end 2013. Budgewoi and Cessnock (NSW) were in the top five worst performing suburbs with 4.4% and 4.2% arrears in the 30+days range. Montrose in Tasmania and Dallas in Victoria shared the second and fifth place with 5% and 4.2% respectively. Overall, thirteen of the 20 worst-performing postcodes were in New South Wales, eight of which were in south west and western Sydney (see Table 1).

Table 1

There is a strong distinction between the best and worst-performing regions. Fitch cited that regions within each state showed strong sensitivity to mortgage rates due to socio-economic factors such as high unemployment and low-income households that historically benefitted the most from falling mortgage interest rates. The vast majority of the worst performing regions were in New South Wales as at 1Q13. Fairfield-Liverpool (NSW) returned to the top worst performing region after Gold Coast East temporarily replaced it in 3Q12. Queensland was the runner up in the 1Q13, with four regions (Gold Coast East, Caboolture Shire, Logan City, and Gold Coast West) compared to the leading spot in 3Q12. Caboolture shire (QLD) recorded the highest increase in delinquency rates by 71bps to 2.28%. Hume City region in Victoria was ranked eights worst performing region by value in the top ten for the quarter (see Table 2). The number of regions in Western Australia among the worst performing was nil in 1Q13, as was the case in 3Q12.

Table 2

According to the report, the weighted average delinquency rates in the top 10 best performing regions worsened from 0.73% in 1Q13 compared to 0.63% 3Q12. This was 15 bps less than the national delinquency average increase of 25 bps. The best performing region by value and number of mortgages in arrears was Borrondara City in Victoria with a 0.38% delinquency rate and only three out of 1000 borrowers in arrears in 1Q13. Southern Inner Brisbane in QLD and Lower Northern Sydney in NSW shared the second and third place with 0.57% and 0.65% in 30+day arrears at 31 March 2013. Lower Northern Sydney (NSW), Southeast Inner Brisbane (QLD), Boroondara City (VIC) and Central Metropolitan City Perth (WA) were the best performing regions in their respective states as highlighted by Fitch (see Table 3).

Table 3