There are more signs the Reserve Bank’s interest rate settings are starting to bite deep into households’ finances with the number of people falling behind on their mortgage repayments climbing to an 8-year high.
Ratings’ agency Fitch tracks payment rates on home loans contained within residential mortgage-backed securities. These are packages of mortgages pulled together and sold to investors including hedge and pension funds.
It reported this morning that the proportion of loans within these securities that were at least 30 days behind in their repayments climbed to 1.3 per cent in the March quarter. The proportion in the early stage of arrears, which is between 30 and 59 days in arrears, lifted to its highest level since February 2016.
For non-conforming loans, which are those to people with poor credit histories or self-employed borrowers with low-documentation, the arrears rate climbed for a third consecutive quarter to its highest level since 2019.
“Increasing arrears across both conforming and non-conforming indices demonstrate that some borrowers are affected by persistent inflation and the 4.25 percentage point hike in official interest rates since mid-2022,” Fitch said in a statement.
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The squeeze on borrowers was also evident in the number of people ahead in their repayments, which fell to 21.5 per cent in the quarter.
The pre-payment rate reached a 15-year high in early 2023 but it is now back to where it was in early 2021 when official interest rates were at 0.1 per cent.
Ten per cent of Australian household disposable income is now covering the cost of mortgage repayments, a record high.
Monthly inflation data from the Australian Bureau of Statistics on Wednesday showed consumer prices rose by 4 per cent over the 12 months to May, up from 3.6 per cent in the 12 months to April.
Financial markets now put the chance of an interest rate hike at the Reserve Bank’s early August meeting at 50-50.
Much will hinge on the less volatile quarterly inflation figures that will be released by the bureau in the last week of July.