Mortgage stress worst in a decade

MORTGAGE stress among borrowers has hit its highest level in more than a decade, according to ratings agency Standard & Poor's.

Old home

Mortgage stress worst in a decade

MORTGAGE stress among Australian borrowers has hit its highest level in more than a decade, according to data published by credit ratings agency Standard & Poor's.

The research found around 1.45 per cent of home borrowers with standard mortgages were at least one month behind on their loan repayments in the three months to end of March, compared to 1.09 per cent in the December quarter.

It is the highest level of arrears recorded by S&P since it began collecting performance data on securitised local mortgages in 1996.

The ratings agency found that stress among borrowers with low documentation loans was even more dramatic. According to S&P, more than 2.57 per cent of low doc borrowers are now behind on their repayments compared to 1.97 per cent during the December quarter.

S&P credit analyst Vera Chaplin said the rise in arrears levels confirmed that more borrowers were enduring stress.

"We have seen recently that more mortgages are remaining in arrears for longer,'' she said.

"This is likely to be the result of the increases in interest rates, seasonal impact of the New Year period and general increases to the cost of living.''

As expected, the S&P data shows that sub-prime loans have suffered the biggest decline in credit quality this year, with almost 15 per cent of such mortgages in arrears at the end of March.

Sub-prime loans are aimed at borrowers who do not meet the lending criteria of the major banks because of their troubled credit histories.

The S&P research is based on data collected from mortgage pools that have been securitised and sold to investors by banks such as Westpac, St George and Members Equity and non-banks including Challenger, Resimac and Liberty Financial.

Ms Chaplin warned that loan defaults, particularly in the sub-prime segment, would continue to blow out this year as more borrowers fell further behind on repayments.