Moody's and S&P are forecasting further declines in credit quality this year as the effects of the property correction wash through the mortgage market.S&P's analysis of movements in the repayment profile of securitised Australian home loans shows that the proportion of mortgages in arrears rose three basis points in March to 1.51 per cent.The rate of deterioration in credit quality appears to be accelerating, with the national arrears rate climbing 14 bps in the 12 months to the end of March.More borrowers in the country's two most populous states are under most pressure to service mortgage debt.NSW recorded the biggest rise in non-performing loans in the last year, with the arrears rate climbing 0.22 per cent. Victoria was not far behind after its arrears rate increased 0.18 per cent.While owner-occupiers are still more prone to falling behind on loan repayments, S&P found that the arrears rate on investment mortgages grew faster in the last year.Arrears on investment loans rose by 27 bps to 1.46 per cent in the 12 month period, while owner occupier arrears increased 17 bps to 1.73 per cent."We expect arrears to remain elevated over the next 12 months," S&P said in its monthly report."The current lending environment will add to mortgage pressures as it will weigh on refinancing prospects for some borrowers."The downbeat outlook was reinforced by a Moody's report that forecast a rise in the number of borrowers with negative equity loans over the next year.Average home prices have fallen by 9.2 per cent since the peak of the market in September 2017 and resulted in 2.6 per cent of securitised mortgages being classified by Moody's as in negative equity.However, the global ratings agency warned that the negative equity rate could climb to 7.1 per cent if average home prices declined a further 10 per cent."In a more extreme 25 per cent further house price decline nationwide, 25.5 per cent of home loans would be in negative equity," Moody's analyst Karen Burkhardt observed in a report."Loans originated by non-bank lenders and those originated in Western Australia from 2013 onwards and in New South Wales and Victoria in 2017 and 2018, pose a relatively higher risk."