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(The following statement was released by the rating agency)Link to Fitch Ratings' Report: Mortgage Market Index - The Dinkum RMBS Index - 2Q16 https://www.fitchratings.com/site/re/887488SYDNEY, September 18 (Fitch)
Australia's 4bp rise in mortgage arrears to 1.14% in 2Q16 comes as a surprise given the strong economic environment, appreciating housing market, low-interest-rates and low-but-positive real wage growth, says Fitch Ratings in the latest Dinkum RMBS Index report.
The increase, which saw arrears worsen by 6bp yoy, was mainly in the 90+ days bucket, following the migration of the 30-60 days arrears in 1Q16 into longer-dated arrears. Historically, arrears that materialise in the first quarter are due to seasonal spending and tend to cure themselves in the next quarter. However, recent data indicates households that had financial difficulties in 1Q16 also had them in 2Q16.Fitch believes the worsening arrears may be due to high underemployment, despite falling unemployment. A slowdown in the mining sector, which has spilled over into regional areas in Queensland, Western Australia and the Northern Territory may have also affected borrowers. Fitch expects 90+ days arrears to increase in these states.
Australia's unemployment rate was 5.8% at 30 June 2016 (subsequently falling to 5.6% in August 2016), among the lowest rate in the previous three years. Meanwhile, the underemployment rate has slowly risen to reach 8.8% in June 2016, a near record high. Underemployed workers are defined as part-time workers who want and are available for more hours of work than they currently have and full-time workers who worked part-time hours during the reference week for economic reasons, such as being stood down or insufficient work being available.
Monetary policy has not significantly benefitted mortgage performance in 2Q16 and lower mortgage rates only marginally helped 30-60 days arrears. However, the effects may be delayed and households may feel positive outcomes on arrears in 3Q16. The August 2016 rate-cut may also improve 2H16 arrears.
Tighter lending standards over the last year or so may have lowered households' borrowing capacity, but Fitch believes the standards increase mortgage market stability should the economy start slowing. Fitch's Dinkum RMBS Index tracks arrears and performance of mortgages underlying Australian residential mortgage-backed securities (RMBS). The full report, Mortgage Market Index - The Dinkum RMBS Index 2Q16, includes current and historic index reference data in Excel-form and is available at www.fitchratings.com or by clicking the link in this media release.
Contacts:James Zanesi Director +612 8256 0306 Fitch Australia Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Australia Hai Duong Le Associate Director +612 8256 0358 Natasha Vojvodic Senior Director Head of Australian and New Zealand Structured Finance+612 8256 0350Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.
Additional information is available on www.fitchratings.com
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