Harder to resolve mortgage arrears

Improvements to lending standards have placed downward pressure on home loan arrears, Guy Debelle, deputy governor of the Reserve Bank said on Friday.

But borrower's in difficulty "are finding it harder to resolve their situation than previously and is consistent with the softer housing market conditions," Debelle said at a FINSIA event.

"The share of housing loans that are 90+ days in arrears have been mainly driven by loans remaining in arrears for longer rather than by more loans entering arrears.

"This is especially so in Western Australia, where housing prices have been falling for some time.

"Liaison with banks suggests that more lenient forbearance and foreclosure policies have also contributed to the increase in longer-term arrears rates."

Debelle said "the mortgage arrears rate, at 1 per cent, is low by both historical and international standards," noting that arrears in the US peaked at around 10 per cent in the financial crisis.

"Non-performing loans currently pose little risk to the health of financial institutions," he said.

"This is not surprising in an environment where the unemployment rate is low and interest rates have been declining. Nonetheless, the arrears rates have been increasing steadily over recent years to the highest it has been for around a decade, and so warrants some scrutiny.

"In Western Australia the unemployment rate has risen from 4 to 6 per cent, housing prices have fallen by 20 per cent, incomes have declined and strong inward migration turned to outward migration such that population growth declined from over 3 per cent to under 1 per cent.

"These conditions have seen the mortgage arrears rate rise from 0.7 per cent to 1.8 per cent.

"This is a significant rise and associated with financial stress for a number of households. But it is still not that high given the economic circumstances."