More Australians may fall behind on home loan repayments this quarter as increases to the benchmark borrowing rate hurt household finances, according to Fitch Ratings.

Arrears of more than 30 days on the loans underlying prime residential mortgage-backed securities rated by Fitch dropped in the second quarter to 1.32 per cent from 1.38 per cent, the ratings firm said in its Dinkum Index report yesterday.

That trend may reverse after the central bank resumed the most aggressive round of monetary policy tightening by a Group of 20 member.

"The risk is that the increase in cash rates will generate an interest rate shock on households" during the third quarter, the risk assessor said.

"If so, arrears might increase further, and in the low-doc conforming sector they might reach a new historical high."

The Reserve Bank of Australia raised borrowing costs six times from October to May, increasing the cash rate by a quarter percentage point each month except in January and February.

Each rise added about A$50 ($64) to monthly repayments on an average A$300,000 mortgage and took the benchmark rate to 4.5 per cent.

The rate rises last year helped propel mortgage arrears 0.19 percentage point higher in the first quarter, according to Fitch.

The firm expects the number of homeowners falling behind on mortgage payments to stabilise in the fourth quarter following a "marginal increase" in repossessions, it said.

Arrears of more than 30 days on low-documentation conforming loans, where borrowers meet a bank's standard home loan criteria but can't provide proof of their income, fell to 3.49 per cent last quarter from 3.62 per cent in the first three months, Fitch said.

Arrears increased to 18.17 per cent from 17.7 per cent among low-documentation nonconforming loans.

Australian home loan approvals rose 1.7 per cent in July, more than analysts estimated, after tumbling for seven straight months through April.

- BLOOMBERG