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A number of factors are contributing to rising mortgage arrears in Australia, but mortgage brokers are well placed to identify when a borrower is struggling and help them out of mortgage stress.
According to Standard & Poor’s Performance Index (SPIN) for prime mortgages arrears were up by 17 basis points year on year in April.
Arrears have continued to rise over the last 12 months, despite low interest rates and stable employment conditions.
Who is struggling?
Standard & Poor analyst Erin Kitson said the most noticeable growth in arrears was for those struggling with arrears of at least 90 days.
Arrears were mostly up nationwide, with only ACT reporting a decrease; Western Australia and Queensland recorded the largest month-on-month increases.
Kitson said the overall increase in 90 days arrears could be due to the state figures; at least half of the longer dated arrears were in Queensland and WA, states which are experiencing the post-mining boom effect and high unemployment rates.
WA has also had drops in wage growth and Queensland has had instances of drought and natural disasters.
Kitson said as well as those state factors the market at the moment was not helping.
“The ability to refinance your home loan – which can often be a common way to self-manage out of mortgage stress – is much more restricted in an environment of tightened lending conditions,” she said. “So that obviously makes it harder for those borrowers to get themselves out of arrears.”
Investor arrears have increased at a faster rate than owner-occupiers this year. In the month to April they rose from 1.46% to 1.52%, while owner-occupiers reached 1.76% from 1.73%.
Kitson said this could be down to the repayment shock of interest-only loans converting to amortizing loans.
What can be done?
Last month the Reserve Bank of Australia (RBA) made its first rate move in nearly three years, dropping the rate to 1.25%. While this may provide some relief for borrowers struggling to pay their mortgages, Kitson said it may not impact those with longer arrears of more than 90 days.
“I think for those borrowers in longer dated arrears positions it may not necessarily be that helpful, particularly given that refinancing conditions are still tight, you’ve still got property prices coming off and wage growth pressure is still there,” she said.
“You’ve got those other opposing forces, or economic headwinds that are working against the impact of a rate cut and I think those impacts will be more pronounced for those borrowers in longer dated arrears.”
The power of brokers
With recent data showing a continued growth in the number of loans through brokers, it is clear they are still a well-trusted vehicle for finding better rates and providing more choice.
Mortgage Choice CEO Susan Mitchell said it was imperative brokers form long lasting relationships with their customers in order to identify when they were in hardship.
“Brokers can support their customers by nurturing an ongoing relationship with them based on transparency and trust through proactive communication,” she said. “Regular and open lines of communication between brokers and their customers will encourage [them] to reach out to their broker if they struggle to make loan repayments and face financial hardship.
“Further, brokers who are proactively communicating with their customers, should be able to identify if a customer’s home loan is no longer meeting their needs, or if the customer’s lifestyle or financial situation is leading them to fall behind on their loan repayments.”
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