Arrears stabilise in Q4

Mortgage arrears have, overall, remained stable since March 2010, in spite of pressure from increasing mortgage rates.

In the wake of last year’s interest rate rises, Australian borrowers demonstrated their ability to cope with higher mortgage payments, while low unemployment and a strong economy were beneficial to mortgage performance in 2010. Due in large part to strong, Asia-based demand for commodity exports and increased investment activity, the Australian economy is likely to remain strong during 2011 and 2012.

Developments in interest rates and in the housing market represent the major source of uncertainty in the 2011 Australian mortgage market.

Borrowers who have shown a significant sensitivity to interest rates in 2010 (self-employed, high debt to income, low-doc etc.) are expected to be the least resilient to further rises in interest rates.

Regions that have experienced far above average delinquency rates in 2010, such as Western Sydney, the NSW Central Coast, Queensland’s Gold Coast and the southwest of Western Australia, are also expected to be more affected by an eventual increase in mortgage rates.

By James Zanesi, Fitch Ratings

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