Australia's 4bp rise in mortgage arrears to 1.14% in the second quarter comes as a surprise given the strong economic environment, appreciating housing market, low-interest-rates and low-but-positive real wage growth, Fitch Ratings says in its latest Dinkum RMBS Index report.
The increase, which saw arrears worsen by 6bp yoy, was mainly in the 90-plus days bracket, following the migration of the 30-60 days' arrears in 1Q16 into longer-dated arrears.
Fitch says that historically, arrears that materialise in the first quarter are due to seasonal spending and tend to cure themselves in the next quarter. However, recent data indicates households that had financial difficulties in 1Q16 also had them in 2Q16.
Fitch believes the worsening arrears may be due to high underemployment, despite falling unemployment.
A slowdown in the mining sector, which has spilled over into regional areas in Queensland, Western Australia and the Northern Territory may have also affected borrowers. Fitch expects 90+ days' arrears to increase in these states.