Mortgage delinquencies highest in Sydney and surrounding suburbs, new report warns

The Fairfield-Liverpool region and outer suburbs of Sydney are among the worst areas in the country when it comes to mortgage delinquencies and investors should keep an eye on these areas, a new report from Moody’s Investor Services reveals.

But the author of the report also says Australia has a relatively low amount of arrears compared to similar economies and urges investors to examine the details of each area and not take the results on face-value. The report points out some areas are over or under-represented when it comes to mortgage delinquencies.

“If you compare our economy to other economies, like the US, or Britain or Spain, you will see our delinquencies are doing quite well in comparison. However, what this report does is highlight the areas within the country that you should keep an eye on,” author Arthur Karabatsos says.

The Fairfield-Liverpool region, which includes suburbs such as Fairfield, Liverpool and Casula, recorded a delinquency rate of 2.77%, while Outer South Western Sydney, including suburbs like Macquarie Fields and Campbelltown, recorded a 2.55% delinquency rate.

The report defines a delinquency as failing to make one or more mortgage payments, meaning they are over 30 days in arrears.

The top 10 worst areas were listed as:

• Fairfield-Liverpool (NSW)
• Outer South Western Sydney (NSW)
• North Western Sydney (NSW)
• Central Coast (NSW)
• Hunter (NSW)
• Canterbury-Bankstown (NSW)
• Lower Western WA (WA)
• Central West (NSW)
• Far West-North Western (NSW)
• Mid-North Coast (NSW)

The report also shows that North Western Sydney, including suburbs such as Penrith, Mt Druitt and Blacktown, account for 6.48% of all 30+ day delinquencies. It is the only region classified as “highly elevated” in terms of contributions to overall delinquencies.

Karabatsos says the report uses the “Moody’s Mortgage Performance Indicator” to compare regions, and claims it to be a more accurate measure. He says if a region has an MMPI of over “1”, then those region’s delinquencies are over-represented compared to the overall country.

For instance. Liverpool-Fairfield represents 4.24% of all arrears in Australia – but the region only accounts for 2.05% of loans. Therefore, the region is given an MMP of 2.07, and is classified as over-represented. Karabatsos says investors should pay attention to this ranking as it will give a more accurate picture of the market.

“When people look at postcodes, they can’t get a picture of what’s going on. I’ve had comments from investors about these postcode-based lists, and they literally try and find road maps and figure out the proximity of one postcode to the other.”

“But what this does is helps investors find where the problematic loans are. We have gone to this new regional approach because I, for instance, can pick up straight away that Sydney is where all the problem areas are.”

Melbourne and Brisbane have recorded some of the strongest results in the country, with three of the top 10 best performing areas located in Melbourne.

One of the biggest factors in high delinquencies is higher LTVs, Karabatsos says. He claims that “without exception, borrowers who have missed at least one repayment have a higher LTV and loan balance than all other borrowers within the same region”.

In the All Gippsland region in Victoria, borrowers have a weighted average LTV of 62.52% and an average loan balance of $133,776. However, those who are 30+ days delinquent have LTVs of 73.30% and loan amounts of $$152,667.

However, Karabatsos declined to comment on how these LTVs are affecting the wider-housing market, saying Moody’s is conducting further research in that area. Overall, he says, the report should be issued as a warning for investors.

“Look at the results, and see where certain arrears are over-represented. There are some areas in Sydney that are performing very badly but you need to look at whether these areas ore over-represented or not, and what the index categorises them as in terms of their overall contribution to delinquency rates.”