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Mortgage defaults soar, despite falling rates

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More homeowners are falling behind on mortgage repayments, despite rate cuts and a low unemployment rate, research suggests.

The mortgage arrears rate jumped unexpectedly last quarter, up from 1.52 percent to 1.57 percent, according to research by ratings agency Fitch.

James Zanesi, director of Fitch's Structured Finance team, said it's too early to judge which factors contributed to the increase in arrears during quarter four of 2011.

"But to a measureable extent, declining house prices were the only key driver of mortgage performance to show a negative trend," he said.

Missing a mortgage repayment could be more costly than homeowners realise, according to RateCity spokesperson Michelle Hutchison.

"Our data shows that the fee for missing a repayment – or mortgage arrears administration fee – is $31 on average (of the lenders which charge this fee) and some lenders charge up to $195 each missed payment," she said.

"Miss two monthly payments and you could have been charged almost $400 as well as adding two additional months' worth of interest to your loan."

Heavy fees are not the only concern for borrowers, however. Delaying your mortgage repayments by more than 60 days is likely to be recorded on your credit file, she said.

It follows RateCity findings that some banks are back to lending almost the entire value of properties, putting borrowers at risk of mortgage defaults.

"After a couple of years of really tight lending criteria, things have started to loosen up a bit; there are now nearly 70 percent of home loans with loan-to-value-ratios of 95 percent and above. This compares to about 50 percent two years ago," said Hutchison.

"Borrowers need to be cautious – a smaller deposit always brings greater risk. You owe a larger amount, so you're more likely to be vulnerable to rate increases or any reduction in your income."

In fact, during the past four years monthly mortgage repayments on a $400,000 home loan have fluctuated by $957.

"Monthly incomes certainly don't fluctuate like this for most PAYE taxpayers – so huge swings in repayments place great pressure on their ability to not only meet repayments but also pay for other expenses," she said.

Fitch said that although delinquency rates were increasing and were above historical Australian averages, they remain low relative to other countries.