New arrears data released by Standard & Poor's showed that more borrowers are falling behind on mortgage repayments despite the lowest mortgage rates in a generation.

S&P data revealed an increase in the number of home loan arrears across prime residential mortgage-backed securities for the seventh consecutive month last May. The ratings agency's prime performance index, known as SPIN, rose to 1.21 per cent in May from 1.14 per cent the previous month and 1.07 per cent a year earlier.

"Most of the increase in arrears for the month was in the more severe category of 90-plus days overdue," S&P said. "The larger upward movements were in the major banks and other bank categories, while nonbank financial institutions were the only sector to see a decline in arrears in May."

The major banks' 90 day-plus arrears rose by four basis points to 0.48 per cent while non-banks fell a point to 17 basis points.

Meanwhile, regulators continue to tighten banking regulation to ensure stronger lending standards after a four-year property price boom in Sydney and Melbourne. Just last week, ANZ tightened mortgage lending policies for security guarantees, limiting leverage that family members can take on to assist property purchases. The total lending against the guarantor's property cannot exceed 70 per cent of fair market value.

S&P's arrears report comes after the agency has put the major banks' credit rating on negative watch for a potential downgrade, right after downgrading Australia's sovereign AAA rating due to the uncertainty of government support.