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The level of arrears on low doc loans is improving steadily, indicating a return to form for the economy
WITH Q309 marking the end of expansionary monetary policy in Australia for this cycle, this quarter also ends with a robust improvement in arrears across all arrears buckets for residential mortgages captured in Fitch Ratings’ Dinkum Index.
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The prime / conforming Dinkum Index improved to 1.21 per cent in Q309 from 1.40 per cent in Q209, an improvement of more than 13 per cent from Q209.
Arrears for (low doc borrowers had the greatest improvement, with a reduction of arrears across the board of more than 15 per cent from Q209.
Low doc 30+ days delinquencies decreased to 4.72 per cent in Q309 from 5.68 per cent in Q209.
The last time arrears declined across all arrears buckets captured in the Dinkum Index was two years ago in Q307.
The cash rate at the time was 6.50 per cent versus a cash rate of 3.00 per cent at the end of Q309.
The unemployment rate was also 4.30 per cent compared to an unemployment rate of 5.7 per cent as of 30 September 2009.
Back in Q307, many areas of the property market were beginning to experience house price depreciation and in Q309 the outlook for property had, in many areas, been positive with house prices appreciating off their recent lows.
Fitch expects the arrears outlook for the remainder of 2009 will remain steady, with the risk of increasing arrears in early 2010 brought about by Christmas seasonal credit card spending, higher interest rates and the risk of a spike in unemployment.
Australia appears to be recovering from the global financial crisis, however overall the strength and speed of economic recovery remains precarious.
By Leanne Valleonga, associate director, Fitch Ratings.
