Mortgage arrears decreased in the first quarter as cuts to interest rates and the federal government’s stimulus payments offset the debt binge that traditionally takes place at Christmas.

Fitch Ratings said in a statement on Wednesday that it was the first time in 10 years of measuring arrears that there had been a decrease in the first quarter from the fourth quarter.

“Increases usually occur due to seasonal Christmas credit spending,” Fitch associate director for structured finance Leanne Vallelonga said in the statement.

“However, the combination of historically low interest rates and the Australian government’s $1,000 payments to eligible families in December 2008 has provided a buffer.”

According to the Fitch Dinkum index, delinquencies over 30 days declined to 1.52 per cent in the first quarter, from 1.75 per cent in the three months to December 2008.

Delinquencies in conforming low-doc loans also improved to 3.65 per cent from a record high 3.95 per cent in the fourth quarter.

But delinquencies in non-conforming low-documentation loans rose to a record 19.79 per cent.

The Reserve Bank of Australia has cut the overnight cash rate by 4.25 percentage points since September to three per cent, the lowest in 49 years.

Most of that reduction had been passed on to variable rate borrowers, with full-documentations loan holders benefiting the most, according to Fitch.

Low-doc borrowers were having greater trouble with repayments as lenders had passed on less of the RBA’s interest rate cuts to them.

The low rates meant borrowers now had an opportunity to increase the equity in their homes through higher repayments, which would create a buffer even if they were to become unemployed, according to Fitch.

Fitch is forecasting the unemployment rate to rise to six per cent in 2009 and peak at 7.2 per cent during 2010, from April’s figure from the Australian Bureau of Statistics of 5.4 per cent.

Based on that forecast, Fitch expects a moderate increase in arrears through 2009.

Fitch also said further stimulus payments from the government since the initial payment in December were likely to keep areas stable in the second quarter.

The Federal Government announced in October that it would be spending $3.9 billion for one-off payments to about 2 million families with children. The payments were made in December.

The government announced a further stimulus package in February, paying eligible tax-payers $900 and a further $900 for children going to school.

The Fitch Dinkum Index was designed to enable investors to track the arrears performance of mortgages underlying Australian residential mortgage backed securities (RMBS).

The data covers about 95 per cent of all Australian publicly issued term RMBS transactions.