Report highlights rising arrears in Melbourne and Sydney’s outer suburbs
More outer suburban areas in Melbourne and Sydney are now recording the highest mortgage arrears in Australia, according to new data from S&P Global Ratings, marking a major shift from five years ago when Western Australia topped the list.
As of March, five of the 10 suburbs with the highest rates of home loan arrears were located in Victoria, and four were in New South Wales. These include Craigieburn, Caroline Springs, Narre Warren, Pakenham and Melton South in Victoria, along with Sydney’s Blacktown, Liverpool and Campbelltown. Queensland contributed just one suburb to the top 10.
Back in 2020, seven of the 10 worst-affected suburbs were in WA, while none were in Victoria, based on S&P’s records at the time.
Rising cost-of-living pressures and reduced real income have contributed to mortgage stress nationwide. In its April Financial Stability Review, the Reserve Bank of Australia (RBA) noted that the proportion of borrowers falling behind on repayments has risen across all states and territories since 2022.
S&P director Erin Kitson said WA’s earlier high arrears were tied to the downturn that followed the mining boom.
“Because property markets were very lacklustre in WA for a long time following the mining boom, borrowers couldn’t voluntarily sell property to get their way out of longer-dated arrears, so that kept them in longer-dated arrears,” she said.
However, Kitson noted that since mid-2023, mortgage arrears in WA have fallen due to stronger property prices and a healthier economy. She added that improved conditions have allowed borrowers to exit delinquency by selling their homes.
In contrast, mortgage performance in Victoria and NSW has deteriorated since the pandemic. Melbourne, in particular, has seen house prices remain below peak, and arrears have been climbing in both urban and regional areas.
S&P found that Craigieburn recorded the highest mortgage delinquency rate in the country, with 3.10% of borrowers behind on payments by March. Several other suburbs had arrears exceeding 2%.
“For around 18 months, outer Sydney and Melbourne postcodes had appeared more frequently in S&P’s top 10 list,” Kitson said. “This is often where, particularly younger households need to move to be able to afford a property. That means that debt to income levels in these areas can often be more stretched, making households more vulnerable and sensitive to high interest rates.”
The RBA noted that borrowers in Victoria tend to carry larger debts and have lower savings buffers, making them more susceptible to repayment stress.
S&P data shows Victoria had the highest arrears rate nationally at 1.17% in March, followed by NSW at 1.07%. WA’s arrears fell to 0.86%.
Looking ahead, Kitson believes arrears may decline in coming months due to lower interest rates, steady employment levels and easing inflation.
“There is the potential for arrears to reduce nationwide, but at different rates depending on local factors,” she said.
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