Reserve Bank of Australia (RBA) figures show home owners nationally are, on average, 2.5 years ahead with their home loan. But as always, averages don’t tell the full picture.

In its October 2016 Financial Stability review, the RBA noted that aggregate mortgage buffers – balances in offset accounts and redraw facilities – total around 17% of outstanding loan balances. That’s the equivalent of 2.5 years of scheduled repayments at current interest rates. Figures from Westpac indicate the vast majority of home owners (72%) are ahead on repayments.

However, these broad-brush figures mask significant differences across individual borrowers. The RBA adds that many have little or no buffer, and key risk cohorts include borrowers who have only recently taken out a loan, lower income borrowers, and those who are highly leveraged.

Resource-based regions among the highest risk

Geography plays a role too. According to the RBA, housing loan performance is especially worrisome in parts of Western Australia and Queensland largely reflecting declining incomes in the mining states.

Investors in many mining regions are facing elevated vacancy rates and sharply falling rents, and in areas where house prices have dropped sharply, some owners face negative equity and an inability to on-sell the property despite heavily discounted prices.

Delinquency rates climb

More recently, Moody’s Investors Service has warned that the proportion of Australian residential mortgages that are more than 30 days in arrears (30+ delinquency rate) has risen to its highest level in three years – and could climb higher[1].

Data from ANZ confirms a small albeit growing proportion of customers who are overdue on home loan repayments.

Moody’s notes that mortgage performance deteriorated in all eight Australian states and territories over the year to 31 May 2016, reaching 1.50% up from 1.34% at 31 May 2015. In general, regions and postcodes exposed to the resource and mining sectors dominated the list of areas with the highest mortgage delinquencies.

In Western Australia, Tasmania and the Northern Territory, the 30+ delinquency rate climbed to the highest levels since Moody’s records began in 2005, while in South Australia, the delinquency rate was just 0.1 percentage point below the state’s record-high reached in April 2013.

Sydney, where housing market and economic conditions are the most supportive for mortgage borrowers, accounted for the majority of regions and postcodes with the lowest delinquencies.

A pipeline of new apartments

That said, the supply of newly-built apartments is set to increase significantly over the next two years, particularly areas of Sydney and Melbourne. This is expected to exert pressure on home prices and rental returns, and raise the risk of mortgage delinquencies and losses, particularly if income growth remains low.

On the plus side, Moody’s believes the relatively stronger economic performance in service-oriented states such as New South Wales, Victoria and South Australia will help offset weakness in the mining states of Western Australia, the Northern Territory and Queensland.

[1] Moody’s: Australian mortgage arrears will continue to rise from three-year high, a credit negative for RMBS, 19 October 2016