While the overall index is at 1.29%, considerable variation exists within the market. Historically, major bank deals have performed better than those of non-major bank ADIs, which have, in turn, outperformed non-ADIs. The prime 30-plus arrears rate for the major banks is at 0.93%, non-major bank ADIs at 1.75%, and non-ADIs at 2.67%. Major banks and non-major bank ADIs have seen considerable improvement in their arrears performance over the quarter while the performance of non-ADIs has remained stable.
The 30-plus arrears rate for deals with 100% low doc loans has witnessed continued increases over recent quarters. However, this trend has abated somewhat in the third quarter and the arrears rate has fallen marginally to 5.22% from 5.72%. Borrowers in these deals provide little or, in the case of no doc loans, no proof of income . The higher delinquency of these loans can be explained by the cash flow volatility of the borrowers, who are typically self-employed. Excluding 100% low doc deals, the prime 30-plus arrears rate would have been six basis points lower, at 1.23% in September.
Overall losses are still very low by international standards with the worst performing vintage, 2004, having incurred 37 basis points of losses to date. Further, many of these losses are covered by excess spread and lenders mortgage insurance.
The prime redemption rate has been around 18%-21% since mid-2011 and was at 18.84% as of September.
The non-conforming 30-plus arrears rate fell to 10.66% in September from 12.47% in June. However, this is 1.16% higher than at the same period last year when the 30-plus arrears rate was 9.50%.
The redemption rates for non-conforming deals have fallen over recent quarters, likely the result of limited refinancing opportunities. In September, total redemption rate for non-conforming deals was 23.95%.
Economic indicators were stable in the third quarter of 2012.
Unemployment remained relatively constant at 5.44%, but regional variation was strong. Unemployment in Western Australia was 4.05% in September compared to 7.29% in Tasmania.
Home prices ended the third quarter with a mostly negative year-on-year change. Perth and Sydney saw modest growth of 0.77% and 0.90% respectively, while all other capital cities saw year-on-year price declines. Melbourne had the largest decline of 3.81%. Overall, prices across Australia fell 1.20%.
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