The steady rise in underemployment in the Australian workforce is leading to an increase in the number home owners having difficulty paying for their loans, according to the global credit rating agency Fitch Ratings.

Key points: Home loan arrears jumped 4 basis points in second quarter

Home loan arrears jumped 4 basis points in second quarter Worsening home arrears due to underemployment

Worsening home arrears due to underemployment Unusual for first quarter areas to extend into second quarter

Unusual for first quarter areas to extend into second quarter Underemployment at historically high 8.7 per cent

Fitch said a rise in mortgage arrears is a surprise given the strong economic environment, appreciating housing market, low-interest-rates and low-but-positive real wage growth.

"The worsening arrears may be due to high underemployment, despite falling unemployment," Fitch analysts wrote in their quarterly study of Australian Residential Mortgage Backed Securities.

The "Dinkum RMBS Index" report found mortgage arrears rose by 4 basis points to 1.14 per cent in the June quarter and 6 basis points over the year.

Problem growing as duration of home loan arrears increase

The problem shows little signs of abating as the big part of the rise was caused by 30-to-60 day problem loans being shifted into in the longer-term +90 day bucket.

"Historically, arrears that materialise in the first quarter are due to seasonal spending and tend to cure themselves in the next quarter," Fitch said.

"However, recent data indicates households that had financial difficulties in the March quarter also had them in June quarter.

"A slowdown in the mining sector, which has spilled over into regional areas in Queensland, Western Australia and the Northern Territory may have also affected borrowers."

Unemployment was sitting at 5.8 per cent at the end of the June quarter and fell further to a three year low of 5.6 per cent in August.

At the same time, underemployment — defined as part-time workers who want and are available for more hours than they currently have — near a record high 8.7 per cent.

The quarterly labour force underutilisation rate — which combines those unemployed with those who are not getting as much work as they want — is now 14.3 per cent.

Underemployment is keeping wages growth down

The historically high underemployment levels have been drivers of both anaemic wages growth and inflation being mired below the Reserve Bank's target band of 2 to 3 per cent.

A report from ANZ Bank last month found underemployment in Australian was "widespread" and growing, reflecting a demographic change and a shift in growth towards the services sector.

"[This] will restrain the eventual recovery in wages even as underemployment edges lower," ANZ said.

Low interest rates not helping mortgage performance

Fitch said monetary policy (low interest rates) has not significantly benefitted mortgage performance in the June quarter and lower mortgage rates only marginally helped 30-60 day arrears.

"However, the effects may be delayed and households may feel positive outcomes on arrears in the third quarter," Fitch said.

"The August rate cut may also improve second quarter arrears."

Fitch said tighter lending standards over the last year or so may have lowered households' borrowing capacity, but the increase in the standards should stabilise the mortgage market should the economy start slowing.