Rising Mortgage Arrears: Causes and Outlook for Borrowers

The Rise in Mortgage Arrears: A Closer Look at the Current Situation

As the world continues to recover from the impact of the COVID-19 pandemic, a concerning trend has emerged in the housing market. Mortgage arrears, which had hit a low point during the height of the pandemic, have been steadily on the rise in recent months.

According to Tim Lawless, the executive research director Asia Pacific at CoreLogic, mortgage arrears have increased from 1% in Q3 2022 to 1.6% in March 2024, marking the highest level seen since Q1 2021. One of the main drivers behind this increase is the rise in non-performing loans, which now stand at 0.93%.

The sharp increase in the cost of debt has also played a significant role in the higher mortgage arrears. Average variable interest rates on home loans have jumped from 2.86% in April 2022 to 6.39% in March 2024, leading to much higher repayments for borrowers. This, coupled with rising living costs, has put pressure on household incomes.

Despite these challenges, most borrowers have been able to maintain their repayments by dipping into savings, increasing their work hours, or reducing contributions to mortgage offsets. Lawless noted that the majority of borrowers have stayed on track with their home loan repayments.

Looking ahead, it is expected that mortgage arrears will continue to increase as unemployment rates rise and household savings diminish. However, a significant spike in arrears is not anticipated unless the labor market weakens more than predicted.

The low levels of mortgage arrears can also be attributed to the strong underwriting standards set by Australian lenders and the prudential regulator, APRA. Borrower serviceability is assessed at a mortgage rate 3 percentage points higher than the actual loan product rate, ensuring that borrowers can afford their repayments.

In conclusion, while mortgage arrears have been rising, the situation is manageable for now. It is crucial for borrowers to stay on top of their repayments and seek support if needed to avoid falling further behind. By keeping a close eye on their finances and seeking assistance when necessary, borrowers can navigate through these challenging times successfully.