MELBOURNE - Mortgage delinquencies are set to rise in 2010 as borrowers battle rising interest rates and Christmas-induced credit card bills, says global ratings agency Fitch.

Home loans in arrears by more than 30 days increased across all borrower categories during the December 2009 quarter as the impact of three consecutive interest rate rises kicked in, Fitch said in a report released yesterday.

Further interest rate hikes, combined with continued global instability and the risk of rising unemployment in Australia, were expected to push arrears higher in 2010, Fitch said.

Christmas seasonal credit card spending is also expected to add pressure to arrears outcomes, the agency said.

However, Fitch said it did not expect an excessive rise in arrears.

Prime conforming mortgages make up the vast majority of mortgages in Australia, and arrears over 30 days declined by 0.02 per cent in the December quarter to 1.19 per cent.

After stripping out the effect of these deals, the proportion of arrears rose by 0.02 per cent to 1.23 per cent, Fitch said.

Borrowers who took out their loans before the global financial crisis hit may find it easier to meet interest payments, Fitch said.

Those borrowers survived through a much higher interest rate cycle than was expected in 2010, paying an average standard variable interest rate of 9.6 per cent in March 2008 when the cash rate peaked at 7.25 per cent.

A rebound in property prices in the second half of calendar 2009 drove an improvement in arrears beyond 90 days as lenders' ability to sell properties improved, Fitch said.

- AAP