Ratings agency Fitch sees deterioration in mortgage credit
Make us a preferred source
Make us a preferred source on Google
The news: Australian mortgage arrears spiked up in the first quarter, according to Fitch Ratings, in a sign mortgage stress is persisting.
The numbers: First quarter arrears typically rise due to post-holiday financial pressure, but this quarter's jump was almost three times the historical average of 8 basis points, Fitch said in its latest Retail Mortgage-backed Securities Monitor.
The agency attributes the larger-than-usual increase to the “cumulative strain of prolonged higher interest rates on households and persistent inflation stretching household budgets”.
Australian 30+ day conforming mortgage arrears rose by 23 basis points quarter on quarter to 1.36% in first quarter 2025, while non-conforming arrears rose more sharply by 39 basis points to 5.32%.
The context: Despite the deterioration in performance, the interest rate cuts of 19 February 2025, whose impact would not have been evident in the data to 31 March, and the subsequent interest rate cut in May 2025, should prevent further deterioration in Australian mortgage performance in the near term, Fitch said.
Australian home prices rose 0.9% in the March quarter, after falling by 0.2% in the previous quarter.
What they said: “We expect prices to increase in 2025 amid limited housing supply, falling interest rates and high net migration seen in the previous two years,” Fitch said.
“Strong home-price growth for most borrowers should limit losses from the sale of collateral property.”
However, Fitch warned the more pronounced rise in non-conforming mortgage arrears highlights heightened vulnerability among borrowers with lower credit quality or low documentation, suggesting a widening gap in financial resilience across borrower segments.
The source: Fitch Ratings
