Residential mortgage performance poor despite low rates

Rising unemployment may "lead to higher long-term arrears" over the first half of this year, Fitch Ratings cautioned in its "Dinkum Index" periodic report on the Australian mortgage market.

Loans that are 90 days or more in arrears increased by three basis points to 0.50 per cent over the December 2014 quarter, compared to the preceding quarter, despite the strong housing market.

Shorter term arrears, of 30 days or more, increased by seven bps to 1.15 per cent over the quarter. However, this is better than a year before when arrears were 1.21 per cent.

Fitch said it expected unemployment to remain relatively stable, and interest rates to remain low in 2015. Higher levels of unemployment, a slowdown in the housing market and rising interest rates, "could lead to servicing pressure, and in turn, higher delinquencies and low foreclosure activity."

"The [property price] growth rate remains high, but has continued to ease since the peak in April 2014. Gains in property prices have historically resulted in a decrease in 90+days arrears, suggesting that high house prices allow borrowers to sell properties and clear arrears," Fitch said.

The report also shows that the average claim on lenders mortgage insurance over the December quarter was A$71,498, below the average cumulative LMI claim of $73,097.