an unexpected loss of all or part of their income. common reasons for this are the loss of a job, ill health or relationship breakdown. these occur even when economic conditions and lending standards are good. so there will always be some baseline level of mortgage arrears. indeed, from a system - wide perspective, a mortgage arrears rate of zero would be undesirable, because it would imply that lending standards were too tight and that credit - worthy borrowers were being denied access to credit. widespread increases in arrears are driven by macroeconomic factors, in particular : rising unemployment rates, which lead to a widespread loss of income ; rising interest rates, which create a higher regular expense for borrowers ; and falling housing prices, which can make it more difficult for borrowers who are behind on their payments to get out of arrears by selling their property. appropriate lending standards that ensure that borrowers have reasonable income and equity buffers can mitigate the impact of macroeconomic factors on arrears, while poor lending standards amplify their effect. in all states, increases in the share of housing loans that are 90 + days in arrears have been mainly driven by loans remaining in arrears for longer rather than by more loans entering arrears ( graph 2 ). this suggests households are finding it harder to resolve their situation than previously and is consistent with the softer housing market conditions. this is especially so in western australia, where housing prices have been falling for some time. liaison with banks suggests that more lenient https : / / www. rba. gov. au / speeches / 2019 / sp - dg - 2019 - 11 - 15. html 2 / 6 18 / 11 / 2019 mortgage arrears | speeches | rba forbearance and foreclosure policies have also contributed to the increase in longer - term arrears rates. graph 2 financial stability review in the recent, we used the bank's securitisation dataset to look at how different types of home loans have performed in western australia over the past few years. as might be expected, loans that were originated with higher repayments relative to income, and loans with higher starting loan - to - valuation ratios have had larger increases in arrears in western australia. larger increases in arrears have been seen for self - employed borrowers, who tend to have more volatile income than salaried employees. arrears rates for investors have

18 / 11 / 2019 mortgage arrears | speeches | rba speech mortgage arrears guy debelle [ * ] deputy governor remarks at finsia signature event : the regulators sydney – 15 november 2019 today i am going to talk about mortgage arrears. arrears are an important indicator of the financial health of households and so have implications for our assessment of current economic conditions and the economic outlook. they clearly are also an important indicator of the financial health of those writing mortgages, be it banks or non - banks. i will draw on material published in the october financial stability review and a speech given by my colleague jonathan kearns. the mortgage arrears rate, at 1 per cent, is low by both historical and international standards. arrears in the us peaked at around 10 per cent in the financial crisis. non - performing loans currently pose little risk to the health of financial institutions. this is not surprising in an environment where the unemployment rate is low and interest rates have been declining. nonetheless, the arrears rates have been increasing steadily over recent years to the highest it has been for around a decade, and so warrants some scrutiny. while the national arrears rate is low, in some parts of the country households have found it harder to keep up with their mortgage repayments. the largest increase in housing loan arrears has occurred in western australia and the northern territory, where economic conditions have been weak and the unemployment rate has risen ( graph 1 ). developments in those two regions show how arrears can evolve in adverse economic circumstances. in western australia the unemployment rate has risen from 4 to 6 per cent, housing prices have fallen by 20 per cent, incomes have declined and strong inward migration turned to outward migration such that population growth declined from over 3 per cent to under 1 per cent. these conditions have seen the mortgage arrears rate rise from 0. 7 per cent to 1. 8 per cent. this is a significant rise and associated with financial stress for a number of households. but it is still not that high given the economic circumstances. https : / / www. rba. gov. au / speeches / 2019 / sp - dg - 2019 - 11 - 15. html 1 / 6 18 / 11 / 2019 mortgage arrears | speeches | rba graph 1 borrowers can fall behind on their mortgages for a number of reasons. the vast majority of people who fall behind on their mortgages do so because of