Mortgage rate pain hits the self-employed

The proportion of 'low-doc' home loan borrowers falling behind with their repayments has hit a record high.

A report on the Australian mortgage market by Fitch Ratings shows that 3.97 per cent of prime low documentation home loans were in arrears during the third quarter of 2010 – a figure slightly above a previous peak in delinquencies recorded for this home loan segment at the end of 2008.

Low-doc loans usually apply to the self-employed or contract workers who are unable to supply sufficient evidence of their regular income.

James Zanesi, associate director in Fitch's structured finance team, commented that three consecutive cash rate hikes ending in May 2010 had hit the self-employed much harder than employees.

"The most vulnerable borrowers, such as low-doc and self-employed borrowers, have experienced the worst performance, with the increase in mortgage payments having an impact on affordability," he said.

Borrowers struggling with repayments could choose to compare home loans and consider refinancing. According to Fitch, there was only a minor rise in arrears within the conventional mortgage market as the proportion of borrowers falling behind on payments climbed from 1.33 per cent to 1.37 per cent in the September quarter.

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