An analysis of prime residential mortgage-backed securities by Moody’s Investor Service showed that loans 30 days or more in arrears rose in the June quarter to 2.16% at regional banks.

The same also rose slightly in the four major banks, from 1.44% to 1.46%.

According to Moody’s analyst Natsumi Matsuda, the deterioration among small lenders is likely to increase further because of weaker economic growth leading to higher unemployment and a growing inability to meet mortgage payments.

“I wouldn’t say it is a serious risk, but it is definitely ticking upwards. It was heading down in 2015 but we’ve started picking up this year,” Matsuda told the Australian Financial Review.

However, she also said that rising equity levels would cushion against losses in many cases of default.

Meanwhile, loans to property investors in New South Wales – the state with the most number of landlords – continued to increase in July.

According to the Australian Bureau of Statistics, investor housing loans rose to 39.4% from 38.1% in June. This indicated a “modest revival”, but it is still way below its “exuberant” levels, said Paul Bloxham, HSBC’s chief economist for Australia and New Zealand.

Even though investment loans increased, lending itself is slowing, as lending to property investors in NSW was down 21% to $50.6 billion from last year’s $64 billion. Total lending also fell by 17.6% in Victoria to $27.6 billion.

Bloxham said that the weaker housing approval numbers are dampening the overall credit demand, a key goal of last year’s APRA-led restrictions on investing lending.

“There is less concern now because overall approvals are still well below their peaks, which is weighing on housing credit growth,” he said.