Mortgage arrears edging higher: Helia

Mortgage insurer Helia is expecting an increase in home loan delinquencies and claims on its policies as Australians battle with higher interest rates and cost of living pressures.

Helia Group chair Leona Murphy. Picture: Stephen Cooper

Listed mortgage insurer Helia is expecting an increase in home loan delinquencies and claims on its policies as Australians battle with higher interest rates and an increasing cost of living, according to its incoming chair, Leona Murphy.

“Mortgage arrears have started to increase slightly, indicating that higher interest rates and cost of living pressures are having an impact on borrowers,” she said in ahead of Thursday’s annual meeting when she will take over as chair. “It’s a bit of a tumultuous time from a homeowner’s perspective.”

Ms Murphy said that “on the whole” borrowers in Australia were “adjusting to the higher home loan rate adjustment requirements reasonably well. This has resulted in a low claim environment and strong profit outcomes for Helia.”

But she said the “cumulative effect” of higher rates was expected to “filter through in the period ahead which should result in increased delinquencies and claims”. Helia was “well capitalised” to cope with the expected increase in claims.

She said requests to the company for “hardship assistance” by borrowers had increased from 8512 in 2022 to 9064 in 2023.

“Our hardship team is noticing that they are having more conversations with more people around how to help them,” she said. The cash buffers which people had built up during Covid, which had been helping some borrowers cope with rising rates, were running down. “As the cost of living increases, the savings buffers go down,” she said.

Helia is an exclusive provider of mortgage insurance for Commonwealth Bank customers.

It also provides insurance for other lenders including Bank of Queensland, Bendigo Bank, ING, and Great Southern Bank.

Ms Murphy is taking over as chair of Helia from Ian MacDonald who has been chairman since August 2016. A non executive director of Liberty Financial, she has been a director of Helia since November 2022.

Her comments about the prospect of home loan stress came as the Reserve Bank kept interest rates on hold at its latest board meeting this week, but with Governor Michele Bullock confirming that the board had discussed a potential rate hike.

Ms Murphy said the RBA cash rates in the market had risen from around 3.6 per cent a year ago to 4.35 per cent today. “That’s impacting the serviceability of home loans for consumers,” she said. “From Helia’s point of view, delinquencies will continue to be driven by unemployment, housing prices and interest rates.”

Mortgage insurance is typically used where people are seeking to borrow more than 80 per cent of the total loan. Ms Murphy said people were using mortgage insurance to buy into their family home earlier without having to save for years for a higher deposit at a time when housing costs are rising in many parts of the country. She said Helia had helped 42,000 people last year to buy a home which they might not have been able to do without mortgage insurance.

She said it could take up to 10 years for some people on the median wage to save up for a 20 per cent deposit on a home.

“The opportunity cost of waiting to save up a 20 per cent deposit means that they can be priced out of the location they want because prices are appreciating so much,” she said,

She said the company had supported over 9000 borrowers facing financial hardship with loan deferrals or restructures last year.

“That’s where we play a role in supporting the financial well being of consumers,” she said.

“For us, it is about helping people get into their homes quicker and helping them to stay in them longer.”

Ms Murphy said new products being launched by Helia included those which could be paid monthly rather than upfront, which has been the case with traditional mortgage insurance, and others aimed at “the bank of Mum and Dad”. “A lot of parents are helping their children get into the home loan market by providing them with money to go towards their deposit.”

Under the new product, parents could get a 15 per cent discount if they paid the lender’s mortgage insurance upfront on their children’s loan – an option which could allow their children to borrow more.

Ms Murphy said Helia was looking at expanding its links with mortgage brokers which were playing an increasingly important role in the market.

She said Helia was also interested in the reverse mortgage market, buying a 22 per cent stake in provider Household Capital in 2022. “We’re pretty happy with that investment and we are learning about that end of the market as well,” she said.