Download A Closer Look at Housing Loan Arrears Box C

Box C
A Closer Look at
Housing Loan Arrears
Data on securitised housing loans and liaison with
lenders indicate that housing loan arrears rates have
recently risen in all the mainland states, especially in
Queensland (Graph C1). Some of the deterioration in
Queensland reflects the temporary effect of recent
natural disasters. But the arrears rate there had
already begun to rise before the floods occurred,
consistent with Queensland’s softer property market
and above-average unemployment rate.
Data on the performance of loans by age cohort and
state show that arrears rates are highest amongst
loans originated towards the end of periods of strong
housing price growth and weaker lending standards.
For New South Wales, the worst-performing loans
are those originated in 2004 and 2005, while for
Queensland and Western Australia, loans originated
between 2006 and 2008 have tended to perform
worst (Graph C2). Many of these loans, particularly
those in Queensland and Western Australia, were
originated towards the end of periods of rapid
housing price growth, which were followed by falls
in prices. With prices no longer rising, borrowers
from these periods cannot sell their property as
easily if they get into payment difficulty, particularly
if they are already in negative equity. This may help
explain the recent increase in the longer-duration
(180+ days) securitised mortgage arrears rate.
Strong housing price growth in earlier periods
may have contributed to a weakening in lending
standards, if perceived risk was reduced by
expectations of further price growth. These periods
tend to be associated with an increase in market
share for non-traditional lenders or smaller lenders,
and an expansion of riskier products such as
low-doc housing loans. In western Sydney between
2004 and 2006, the expansion of mortgage broking
allowed newer lenders to compete for market share
(see p 47 of the September 2008 Financial Stability
Review for a discussion of this episode). Many of the
loans from this period are still performing relatively
Graph C1
Graph C2
Securitised Housing Loan Arrears by State*
Securitised Housing Loan Arrears by Cohort*
90+ days past due, per cent of outstandings
90+ days past due, per cent of outstandings
%
%
%
NSW
QLD
WA
%
NSW
0.9
0.9
0.9
2004 and 2005
0.6
0.6
WA
0.9
2006 to 2008
0.6
0.6
2003 to 2005
VIC
0.3
0.3
0.3
0.0
0.0
0.3
Other
QLD
0.0
2003
2005
2007
2009
2011
* Prime loans securitised by all lenders; excludes self-securitisations
Sources: Perpetual; RBA
0.0
0
24 48 72 96
24 48 72 96
24 48 72 96
Months since origination
* Prime loans securitised by all lenders; includes self-securitisations
Sources: Perpetual; RBA
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poorly, despite now having largely aged beyond the
normal peak arrears time of three to five years (Graph C3).
Graph C3
Securitised Housing Loan Arrears by Region*
90+ days past due, per cent of outstandings
%
they are now able to make their current monthly
payments, and they therefore may remain in arrears.
Unemployment in Queensland has been more
persistent than in the rest of Australia, suggesting
that some households in this state have faced more
%
Graph C4
1.0
1.0
Western Sydney
0.8
0.8
0.6
0.6
0.4
0.4
Dwelling Prices and Loan Approvals
%
%
Dwelling price growth*
Year-ended
35
35
0
Other Sydney
0
WA
Index
Index
Investor loan approvals
January 2000 = 100
0.2
0.2
500
0.0
2003
2005
2007
2009
* Prime loans securitised by all lenders; includes self-securitisations
Sources: Perpetual; RBA
2011
0.0
500
250
250
Rest of Australia
Index
During the periods of strong housing price growth in
Queensland and Western Australia, investor activity
increased significantly more than owner-occupier
activity (Graph C4). Between 2000 and 2007, the
value of investor loan approvals grew around
fivefold in these two states, whereas owner-occupier
approvals increased around threefold. Recent softness
in housing prices has been associated with sharper
falls in investor approvals relative to owner-occupier
approvals. This procyclicality in lending may have
amplified cyclical movements in prices, raising
arrears rates in aggregate.
Labour market conditions have also contributed to
the recent increase in arrears rates in Queensland
and Western Australia. Unemployment increased
more sharply in Western Australia in 2009 than in
the rest of Australia, particularly for younger
households, which are less likely to have
accumulated as much savings or equity in their
homes relative to other households (Graph C5).
Although unemployment there has since fallen,
some households may have been unable to
make up any missed mortgage payments, even if
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R ES ERV E B A N K O F AUS T RA L I A
Index
Owner-occupier loan approvals**
January 2000 = 100
500
500
QLD
250
250
0
0
2001
2003
2005
2007
2009
2011
* Capital cities only; ‘Rest of Australia’ excludes units in Darwin, Canberra and
Hobart, and houses in Hobart prior to 2003
** Excludes refinancing
Sources: ABS; APM; RBA
Graph C5
Unemployment Rates
Six-month moving average
%
All ages
Aged 25-34
8
%
8
QLD
6
6
Australia
4
4
WA
2
2001
Source: ABS
2006
2011
2006
2
2011
prolonged income pressures than national average
data imply.
Despite the increase over the first half of 2011,
the overall mortgage arrears rate in Australia is
still low by international standards, and the bulk
of housing loans in arrears are well collateralised.
Moreover, as discussed in the ‘Household and
Business Balance Sheets’ chapter, there are a number
of reasons why mortgage arrears are unlikely to
rise as much as they have in some other countries.
Not least is the more favourable macroeconomic
environment in Australia. R
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