Australian borrowers appear to be successfully sinking their teeth into their substantial mortgage debt, with new data showing an improvement in national home loan arrears.
The number of Australian borrowers 30 days behind on prime mortgages dropped to 1.54 per cent from 1.62 per cent between June and September 2017, according to credit ratings agency Moody's, with non-bank loans seeing the biggest improvements.
Despite the improvement, the September-quarter figure remains below the 1.48 per cent recorded for the same period in 2016.
Loans taken out through non-bank lenders, otherwise known as shadow lenders, stood out in the data as showing the largest improvement, with the rate of failure to make mortgage repayments dropping from 2.85 per cent to 2.59 per cent over the period. The news comes after the Australian Prudential Regulation Authority (APRA) announced it would target 'risky loans' often associated with this sector, with a particular clamp-down on interest-only loans.
Again, despite the improvement, the result was also still above the September 2016 figure.
Meanwhile, the loans to non-conforming or sub-prime borrowers - those with a higher-than-normal credit risk - also improved to 3.3 per cent from 3.55 per cent over the period.
Shift from a purchasing mentality
As property prices in Sydney and Melbourne begin to unwind after significant growth over the past five years, borrowers are left to consider high debt levels and weaker capital growth. And with Australian households' debt-to-income ratio now sitting at record-high levels, many have shifted their from a purchasing mentality to focusing on their debt.
"Consumer survey data suggests that households are currently very inclined towards using their saving to pay off debt, rather than invest in shares or real estate," Credit Suisse researchers wrote this week.
But the data provides two narratives, according to CommSec senior economist Ryan Felsman - that serviceability is actually better than commonly thought, and that Australians are focused on keeping it that way.
"Australians are pretty wary of debt at the moment," Mr Felsman told Domain.
"We look at credit card debt, for example, and if you look at the average credit card balance in Australia as of November it was about $3,120 - just slightly above the decade low."
But beyond a broad shift in mentality, the environment for Australian mortgage holders may be better than commonly thought, according to Mr Felsman.
"There's a lot of narrative at the moment around household debt, rising cost of living ??? but the reality is that debt servicing ability is quite strong for households at the moment.
"The actual debt is indeed elevated - the average mortgage is around $300,000 - but in terms of servicing mortgages, and delinquencies around that ??? they're low."
