Australian Home Loan Delinquencies Jump to Record on Rates, Fitch Says

Australian home loan delinquencies jumped to the highest on record in the first quarter, driven by Christmas spending, a November interest rate increase, and recent natural disasters, Fitch Ratings said.

Mortgages more than 30 days overdue rose to 1.79 percent of the nation’s residential mortgage backed securities in the quarter ended March 31, from 1.37 percent in the previous three months, according to the London-based ratings firm. The number of “low-doc” loans more than 30 days late climbed to a record 6.74 percent from 5.7 percent, according to the report.

“A rise in arrears was expected given the usual seasonal negative impact,” James Zanesi, associate director for structured finance at Fitch, wrote in the statement. “Fitch, however, did not expect arrears to increase to this extent.”

Rising interest rates are keeping homebuyers on the sidelines even as the number of properties listed for sale continues to climb, sending home prices lower in the first quarter by the most since 2008. Moody’s Investors Service cut its ratings on Australia’s four biggest banks last week.

Queensland state had almost two months of flooding that closed mines and damaged crops in the state’s southeast and inundated about 40,000 properties in the capital Brisbane. Cyclone Yasi, which tore through the state’s northeast coast packing winds stronger than Hurricane Katrina; Cyclone Dianne in Western Australia, and Cyclone Carlos in the Northern Territory have all ravaged the country this year as a La Nina weather event dumped record amounts of rain in parts of Australia.

Borrowing Slows

Borrowing for mortgages grew by 6.6 percent in March from the year-earlier period, the least since the central bank figures were first reported. Fitch has warned that it could cut the lenders’ ratings if they lower standards to boost sales.

While the number of loans in arrears is expected to fall slightly in the second and third quarters as the impact of seasonal spending and the floods dissipates, this could be offset by further interest-rate increases and the recent rise in the cost of living, Zanesi said.

Traders bet there’s a 60 percent chance the central bank will resume raising interest rates by year end, boosting the benchmark rate by a quarter of a percentage point to 5 percent after pausing for six months, bank bill futures show.

Still, overall, the Australian RMBS market remains stable and delinquency levels are low compared with other countries, Zanesi said. A stress test conducted by the company last year found that Australian banks and insurers can weather a 30 percent drop in home prices and a mortgage default rate of as much as 6 percent.

Commonwealth Bank, Westpac

Commonwealth Bank of Australia (CBA) Chief Executive Officer Ralph Norris told analysts this month that a post-Christmas lift in arrear rates is “typical across all institutions.” He said the bank expects the “seasonality factor to come out of the numbers” in the second quarter.

Westpac Banking Corp. (WBC) this month attributed an uptick in arrears to lending between 2007 and 2009.

As delinquencies “reach a peak in that two-to-three-year period after drawdown, what you’re seeing is that pool of large loans coming through and reaching that period of maturity and lifting the overall average,” Philip Coffey, Westpac’s chief financial officer, said on a call with analysts on May 3.

Mortgage payments that were between 30 and 59 days late climbed to 0.79 percent in the first three months of 2011 from 0.58 the previous quarter as borrowers affected by flooding earlier this year fell behind on payments while awaiting financial help, Fitch said.

“More susceptible borrowers remain under pressure to make mortgage payments,” Zanesi said. “Moreover, it is likely that the Queensland floods have reduced the serviceability of self- employed borrowers more than salaried households.”

To contact the reporter on this story: Nichola Saminather in Sydney on nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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