Rising mortgage arrears worst in Victorian and NSW

Sydney dominates the top 10 list of areas where investors are struggling, while parts of Melbourne also have their problems, S&P Global says.

S&P Global says NSW and Victoria have had the biggest rise in mortgage arrears. Picture: Max Mason-Hubers

Mortgage arrears are on the rise as higher repayments bite, and NSW and Victoria are reporting the sharpest uptick in borrower stress, according to S&P Global.

While Victorian homeowners appear to be struggling the most – the state taking out six of the top 10 worst-performing suburbs in terms of arrears – Sydney takes the top spot for most stressed investors, the ratings agency said.

“Several areas in Sydney have investor arrears that are higher than in other parts of the country,” S&P said on Wednesday.

Sydney’s outer southwest, with 2.6 per cent of investor loans in arrears, followed by the Blue Mountains and Parramatta, at 1.6 per cent, were all in the top five worst spots, while southwest, inner southwest and North Sydney made it into the top 10.

Elsewhere, investors in Melbourne’s northwest, as well as Mandurah and inner Perth in WA, and Darwin are also among the nation’s worst in terms of arrears.

The higher investor arrears in Sydney may reflect the larger loan sizes required to buy investment properties in the city relative to household income, the ratings agency said.

“Given the high private ownership of rental stock in Australia, many investors also will be facing higher repayments on their home mortgages, in addition to general cost-of-living pressures,” S&P said.

But property price growth will be helping to keep investor arrears low overall, by granting a way out to this cohort who are more financially stretched, through voluntary sale of their properties.

Of the top 10 worst performing suburbs for homeowners, six are in Melbourne – Doreen, Craigieburn, Burnside, Fountain Gate, Cranbourne and Point Cook – with arrears ranging from between 2.7 and 1.9 per cent. Sydney’s Casula, with 3.5 per cent of loans in arrears, was the worst of the lot, while Belimbla Park, Alison, and Armadale in WA also made it into the top 10.

Overall, arrears in prime residential mortgage backed securities stood at 1 per cent by the end of March, up from 0.95 per cent a year ago. This compares with a historic low of 0.58 per cent but arrears are expected to rise further as rates stay on hold for longer.

Those hoping for some relief from the Reserve Bank were dealt a blow on Wednesday when the latest inflation numbers showed a lift in consumer prices, against expectations of a slight decline.

Inflation climbed for a second month, to 3.6 per cent in the year to April, up from 3.5 per cent the month prior, dashing hopes of rate cuts in the coming months. This means struggling homeowners will be under pressure for longer, and could be squeezed even further if the RBA hikes in a bid to to kick inflation lower.

Nonconforming arrears jumped to 4.2 per cent in the March quarter, up from 4 per cent in the December quarter. Again, arrears in this segment, typically less stable than prime, are tipped to rise further.

S&P expects upward pressure on arrears, both prime and non-confirming, as the unemployment rate rises.

“While improving wage growth is helping with debt serviceability, increases in mortgage repayments are still outstripping income increases for many borrowers. This is occurring alongside significant increases in key household expenditures like insurance premiums and energy costs,” the ratings agency cautioned.

Originally published as Rising mortgage arrears worst in Victorian and NSW