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Mortgage arrears stay steady as banks chase business

Mortgage arrears have remained fairly steady, as banks move to take advantage of spring to aggressively sell loans.

A quarterly index of mortgage delinquencies by ratings agency Fitch finds that arrears rose 2 basis points in the June quarter, meaning 1.22 per cent of borrowers were at least 30 days behind in their loans.

Fitch says delinquencies typically fall in the second quarter, but the lack of the usual post-Christmas rise has meant the proportion of borrowers in trouble at the start of the period was lower than usual.

Fitch says its Dinkum Index shows delinquencies were down 18 basis points on levels seen in June last year, no doubt helped by a reduction in both the cash rate and an even bigger fall in mortgage rates since then.

The low rate of bad loans, and a 10 per cent annual rise in home prices, also helped mortgage insurers, which saw the number of claims more than halve to just 34 in the second quarter.

The average claim amount of $46,878 was also well below the longer term average of just over $84,000.

However, Fitch warns that the benefits of rising home prices will be short-lived and could result in payback for lenders and mortgage insurers later.

"Rising house prices are beneficial to delinquencies and losses in the short-term, but sustained rapid rises could eventually have a negative effect on losses, especially for less seasoned loans with high loan-to-value ratios," the report noted.

"Fitch believes the current yearly rate of growth is unsustainable in the long term if not coupled with an increase in household income."

The rise in home prices does not show any sign of stopping though, with at least one major bank now announcing a $1,000 gift card for home buyers who take out a loan with it by the end of October.

The promotion echoes offers made by most of the majors last year to entice customers to borrow from them during the peak spring selling season for housing.