TEXT-Fitch:Falling rates boost Australian mortgages recovery;tourist regions lag

Tue Feb 5, 2013 8:11am EST

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(The following statement was released by the rating agency)

Feb 05 - Fitch Ratings has said in its latest update of Australian mortgage performance that the Reserve Bank of Australia's (RBA) decision to reduce the cash rate by 50bp in May 2012 and 25bp in June 2012 has improved mortgage performance across all Australian states and regions. Delinquencies decreased to 1.2% nationwide at end-September 2012, down from 1.6% at end-March 2012 and significantly below the five-year average of 1.56%.

Queensland remained the worst performing state, with a 30+ day delinquency rate of 1.41%, but down from 1.86% at end-March 2012. Most of the country's 10 worst performing regions were in Queensland.

Regions southwest of Sydney, west of Melbourne, and south of Brisbane - where serviceability is key to mortgage performance - benefited most from the cuts. For example, Ipswich (QLD) and Fairfield-Liverpool (NSW) had the largest decreases in 30+ day delinquency rates among all Australian regions since end-March 2012, with falls of 100bp to 1.71% and 1.82%, respectively - 2.5x the national average decrease.

Delinquency rates in Logan City (QLD) and Outer South Western Sydney (NSW) and Outer Western Sydney (NSW) also decreased significantly, by 91bp, 79bp, and 76bp, respectively.

The October and December 2012 cash rate cuts are expected to benefit Australian mortgage performance in Q113, and offset seasonal Christmas spending. The effect of interest rate movements is reflected in mortgage performance with a three- to four-month lag. Regions in which serviceability is key to mortgage performance, such as New South Wales (NSW), are expected to benefit the most.

Gold Coast East (QLD) replaced Fairfield-Liverpool (NSW) as the worst-performing region in Australia despite a small improvement in mortgage performance, with a 30+ day delinquency rate of 2.44%, and 16 out of 1,000 borrowers in arrears. Fitch expects Gold Coast East to remain the worst performing region in Q113, as Fairfield-Liverpool (NSW) is expected to benefit more from the Q412 cash rate cuts.

Tourist areas are less affected by monetary policy and more by the high Australian dollar, housing prices, occupancy rates and rental yields. This is evident in popular tourist destinations being among the worst performing postcodes. Nelson Bay (NSW), a well-known tourism destination in NSW's Hunter region, remained the worst performing postcode by value of mortgages in arrears, with a 30+ day delinquency rate of 6.6%.

Lower Northern Sydney (NSW), Inner Brisbane in Queensland (QLD), Northern Middle Melbourne in Victoria (VIC) and Central Metropolitan Perth in Western Australia (WA) were the best performing regions in their respective states, by both mortgage value and number of mortgages in arrears.

The full impact of the flooding and bushfires that hit Australia, and in particular Queensland, in January 2013 has yet to be quantified. Mortgages whose property or borrower is located in the affected areas might experience hardship as was the case in 2011. Fitch will continue to monitor developments closely as the impact of the natural disasters on Australian mortgages becomes clearer.

The report, "Australian Mortgage Delinquency by Postcode - 30 September 2012", analyses the performance of the local residential mortgage market using data covering around 15% of all mortgages in Australia (approximately 1.1 million loans), as of September 2012, with a total outstanding balance of over AUD211bn.

The report is available on www.fitchratings.com or by clicking on the link below.

Link to Fitch Ratings' Report: Australian Mortgage Delinquency by Postcode - 30 September 2012

here

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