Are Australians struggling to pay their mortgages?

Generally speaking, no, with mortgage delinquency rates remaining low and below the 5 year average, although some areas of low income are vulnerable. 

For all the talk of a nationwide housing bubble, delinquency rates remain around where they were a decade ago - they rose to 2% in the lead-up to the GFC, but they've come back down to just 1.45% as interest rates fell, despite a small increase in the period to March 2013. Reports Fitch:

"Low Income Areas in Australia Remain Vulnerable Despite Low Mortgage Rates

On average, the delinquency rate across Australia increased to 1.45% at end -March 2013, up from 1.2% at end-September 2012, but below the five-year average of 1.53%."

However, that is something of a generalisation, for low-income areas are struggling much more than relatively affluent regions:

"However, within each state, mortgage performance diverged between low-income areas and affluent regions. Regions southwest of Sydney, west of Melbourne, and south of Brisbane, where serviceability is key to mortgage performance, experienced the sharpest increase in arrears. 

These regions recorded an increase in delinquency rates in the 26bp-55bp range, above the national average increase of 25bp. Fairfield-Liverpool (NSW) returned to being the worst-performing region with a 30+ day delinquency rate of 2.37% at end-March 2013, compared with 1.82% at end-September 2012.

Delinquency rates were little changed in Australia's most affluent regions. Lower Northern Sydney (NSW), Southeast Inner Brisbane (QLD), Boroondara City in Victoria and Central Metropolitan Perth in Western Australia were the best performing regions within their respective states. 

On average, the ten best performing regions worsened by 10bp, to 0.73% from 0.63% in September 2012, and showed no change in the number of borrowers in arrears, still five out of every 1,000."

Fitch is Fairly clear on which sector of the market is best avoided by investors, then. Low income areas have increasing deliquency rates - but, the good news is that they are increasing from the lowest levels recorded by Fitch in September 2012.

"Christmas spending and increasing cost of living might have arguably offset the positive benefits from lower mortgage rates, but do not fully justify the increase in delinquency rates. 

The increasing number of delinquent borrowers in low-income and high-unemployment regions might indicate that these specific serviceability constraints cannot be fully solved by monetary policy, unlike previous first quarters characterised by rate cuts.

Therefore, the delinquency rate in these regions may have reached a floor in September 2012 when arrears were in line with, if not lower than the delinquency rates in 2004, the lowest level recorded from the data used in this analysis."

So, Fitch concludes, some low income areas cannot be saved by monetary policy (low interest rates). 

Fitch also notes that there is now little difference between the delinquency rates of different states. 

Fairfield-Liverpool (NSW) is the worst performing region, and Nelson Bay in the Port Stephens region of NSW is the worst performing postcode, with a delinquency rate of 6.6%. Despite what some commentators recommend, I'd steer well clear of these coastal regional areas.

In summary, delinquency rates remain way below the 2% level they reached before the financial crisis and are broadly where they were a decade ago.

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