Interest Rate Increases Cause Mortgage Delinquencies To Rise

Post by Sharat on February 15, 2010 · Under Australian Economy, Business News, banking, credit cards, home loans, interest rates, loans, mortgages · Comment 

Delinquent mortgage payments are set to increase during 2010, as borrowers struggle to deal with rising interest rates and high credit card bills run up during Christmas, according to global credit ratings agency Fitch.

30 day mortgage arrears rose across all borrower classes during the December quarter the ratings agency said in a report.

Low documentation mortgage arrears spiked by more than 50 per cent during the September quarter, as borrowers began feeling the effect of three consecutive interest rate hikes.

Low documentation loans constitute only a tiny fraction of the mortgage lending market, and as is to be expected, was the first section of the market to feel the effects of interest rate rises.

According to the ratings agency, the prospect of future interest rate rises, the potential for increased unemployment and continued global instability, were all likely to cause the delinquency rate to increase during 2010.

The ratings agency said that consumers racking up debt during the seasonal Christmas shopping period was also likely to add pressure to delinquency rates.

According to Fitch, borrowers who undertook mortgages before the onset of the global financial crisis may have an easier time meeting their loan obligations.

Those borrowers have already managed to survive a much higher interest rate cycle than is expected in 2010. Most of those borrowers paid an average standard variable rate of 9.6 per cent, when the official cash rate peaked at 7.25 per cent in March 2008.

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