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Up to 15pc of frozen home loans to tip into arrears

Michael BlebySenior reporter

As many as 15 per cent of the peak level of COVID-19-deferred mortgages, mostly for inner city investment properties and outer-suburban owner occupier homes, could transfer to formal hardship arrangements after lenders’ deferral periods expire, S&P Global Ratings says.

The boost that could add up to 1 or 1.5 percentage points to arrears, and bring the overall pre-COVID-19 level of 1 per cent arrears up to between 2 and 2.5 per cent, was only likely to surface in the second half of this calendar year, said Erin Kitson, a director of the ratings agency.

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“I don’t think it’s going to peak in April or May,” Ms Kitson said. “Normally it takes time for arrears to start to work through.”

The shake-out of problematic loans will become more visible with the end of the deferral window. The large volume of mortgage holders who have to date taken their loans out of the deep freeze to resume normal payments have done so voluntarily, while mortgage holders unable to return to previous arrangements have been able to stay under deferral.

There is some good news for mortgage holders caught as support measures come to an end. Prices are rising, creating greater equity for many and this will reduce the losses felt by borrowers in the case of default. Historically low interest rates also improve borrowers’ debt-servicing abilities.

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Summary | 3 Annotations
2.5 per cent,
2021/03/09 05:41
Prices are rising, creating greater equity for many and this will reduce the losses felt by borrowers in the case of default.
2021/03/09 05:47
Historically, investor loan arrears had been lower than owner-occupier loans as investors typically tended to be higher earners, with more resources behind them and has historically relied on more in interest-only loans, reducing the value of their regular repayments, Ms Kitson said.
2021/03/09 05:49