Mortgage arrears are on the increase especially amongst non-conforming borrowers. This suggests a growing number of home owners are finding themselves in mortgage stress.
According to a recent report by Moody’s Investors Services, 13 per cent of non-conforming borrowers are in arrears on their repayments, up from 12.1 per cent last quarter, despite a drop in unemployment and signs that the domestic economy is improving. There has been a significant increase in interest rates for no-conforming loan products by most Australian lenders.
The rise in the number of troubled mortgages will cause the big four banks to rethink their decision to lower provisions for bad debt.
In the first half of 2010, the big four banks cut the amount of money they hold in reserve to cover bad debts by $2.2 billion to a combined $4.5 billion in the expectation that an improving economy will lead to fewer losses.
The lower provisions helped the majors boost half year profits to a combined $10.4 billion