Fitch: Surprise Jump in Australian Mortgage Arrears; Underemployment a Threat
The increase, which saw arrears worsen by 6bp yoy, was mainly in the 90+ days bucket, following the migration of the 30-60 days arrears in 1Q16 into longer-dated arrears. 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.
Australia's unemployment rate was 5.8% at 30 June 2016 (subsequently falling to 5.6% in August 2016), among the lowest rate in the previous three years. Meanwhile, the underemployment rate has slowly risen to reach 8.8% in June 2016, a near record high. Underemployed workers are defined as part-time workers who want and are available for more hours of work than they currently have and full-time workers who worked part-time hours during the reference week for economic reasons, such as being stood down or insufficient work being available.
Monetary policy has not significantly benefitted mortgage performance in 2Q16 and lower mortgage rates only marginally helped 30-60 days arrears. However, the effects may be delayed and households may feel positive outcomes on arrears in 3Q16. The August 2016 rate-cut may also improve 2H16 arrears.