INVESTORS are not as good a bet for banks as ordinary home owners.
Borrowers with investment property loans were one and half times more likely to fall into severe delinquency - more than 90 days overdue on repayments - than those with owner-occupier mortgages, the latest Fitch Ratings report on residential mortgages shows. But fewer Australians overall are now defaulting on mortgage repayments, the result of recent cuts in interest rates and slower growth in house prices.
Official data released on Tuesday shows house prices in Australia's capital cities rose 1.6 per cent in the December quarter, ending the year on a high. This compares with a 0.1 per cent fall in the September quarter.
In the year to December, the house price index rose 2.1 per cent, the Australian Bureau of Statistics figures show. A UBS economist, George Tharenou, said the rise was much stronger than expected and supported the broad trend that property values were picking up. "I think the RBA's interest rate cuts have made a material difference to housing affordability, which has improved to the best in around a decade," he said. "That has stimulated people to go out and pay more for homes."
Mr Tharenou said the data suggested household wealth was improving, with a little help from a more stable global economy and a rebound in equity markets. That wealth effect is showing up in mortgages. The proportion of Australians with mortgage delinquencies fell to 1.2 per cent of loans by the end of September last year, significantly below the five-year average of 1.56 per cent.
Even with households spending big for Christmas, the risk of defaults rising was reduced by the Reserve Bank's October and December rate cuts, the Fitch report said.
Queensland remains the worst state for struggling debtors, containing 10 of the country's worst performing regions. But even there, the rate of delinquency has fallen.
"Regions south-west of Sydney, west of Melbourne, and south of Brisbane - where serviceability is key to mortgage performance - benefited most from the cuts," the report said. Ipswich in Queensland and Fairfield-Liverpool in NSW improved most in the three months to September, with the largest reduction in people unable to meet 30-day loan repayments.
The full effect of January's floods and bushfires was yet to be felt but it was likely borrowers would be hard hit, Fitch said.
Perth and Darwin were the country's best performing cities, recording price increases of 2.9 per cent and 2.6 per cent, respectively, over the quarter. Sydney posted a solid 2.3 per cent rise in home values over the quarter, followed by Canberra with a 2.1 per cent gain. House prices in both Melbourne and Brisbane rose slightly higher, by 0.7 per cent. Adelaide values rose 0.8 per cent for the quarter but fell 0.4 per cent for the year. Hobart was the only capital city to lose ground in the final quarter of last year.
The ABS data follows last week's RP Data-Rismark Home Value Index for January, which showed dwelling values rose 1.2 per cent, on aggregate, across the country's eight capital cities.