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Aussie prime mortgage arrears decline on jobs

Higher interest rates are likely to affect arrears in third quarter, says Fitch

(HONG KONG) Delinquencies on Australian prime mortgages fell in the second quarter as unemployment declined to a 33-year low, according to Fitch Ratings.

Non-conforming home loans that were at least 30 days in arrears declined to 1.48 per cent of mortgages used to secure bonds, from 1.54 per cent in the first quarter, the credit assessor said yesterday.

‘Despite the disruption to international capital markets, increasing interest rates and contrary to press reports of local mortgage stress, Australian residential mortgage-backed securities continue to perform well,’ Sydney-based Ben McCarthy, head of Fitch’s Australian structured finance team, said in a statement.

Australian employers hired almost twice as many extra workers in August as economists had forecast after mining companies expanded to meet soaring demand for commodities for China and retailers opened new stores. The jobless rate was 4.3 per cent.

Fitch expects higher interest rates to affect arrears in the third quarter. The Reserve Bank of Australia raised the overnight cash rate target by 25 basis points on Aug 8 to an 11-year high of 6.5 per cent.

The ‘buoyant Australian property market has ensured that even those under stress have been able to avoid mortgage default through refinancing or sale’, Mr McCarthy said.

Delinquencies for so called ‘low-doc’ low-home loans which require less documents and income proof than standard mortgages increased to 4.54 per cent from 4.45 per cent. Borrowers in the loans, ‘being primarily self-employed borrowers, are more affected by shifts in the economy such as interest rate movements’, said Jason Hughes, a senior analyst at Fitch.

‘What we’ve seen is house prices go up,’ said David Verschoor, a Hong Kong-based trader of Australian credit default swaps at BNP Paribas SA. ‘When that’s the case, if someone can’t afford their house any more, they sell it.’

Moody’s Investors Service said on Aug 27 arrears on Australian home loans made to borrowers with poor credit histories rose to a record of 6.5 per cent in the second quarter.

The average household’s debt-to-income ratio has more than doubled to 158 per cent in the past decade, according to Moody’s. 


Source: Bloomberg (Business Times 11 Sept 07)

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