Are Australian mortgages held together by government support?

The response by the banks and the government to the COVID-19 pandemic has seen mortgage stress fall to a near record low, but dangers remain when support is withdrawn, consumer research has found.

Survey results by Roy Morgan show that an estimated 751,00 mortgage-holders or around 20 per cent were at risk of mortgage stress in three months to August 2020.

This is near the record low of last year when 723,000 mortgage-holders were considered at risk.

Of those “at risk”, more than half (433,000 or 12.5 per cent of all mortgage-holders) were considered “extremely at risk” – also near the record low of 425,000 reported a year ago in the three months to October 2019.

Roy Morgan’s chief executive, Michele Levine, said the COVID-19 crisis has sent an unprecedented shock through the Australian economy, with the government and banks preventing or at least putting off the potential real estate crisis.

“These figures are somewhat deceptive as they rely on an unprecedented level of support provided to the economy. The federal government has subsidised workers with the $1,500 a fortnight JobKeeper wage subsidy, the almost doubled JobSeeker payment of over $1,100, and allowed businesses to trade while insolvent this year to keep people employed,” Ms Levine noted.

The Australian Prudential Regulation Authority (ARPA) pointed out that banks have deferred around $160 billion or 9.6 per cent of mortgages, providing temporary relief for mortgage-holders.

“APRA figures show that those holding loans with a loan-to-value ratio above 90 per cent were significantly more likely to take up a repayment deferral. These loans make up 5 per cent of all housing loans, but 9 per cent of deferred loans, and are for borrowers more likely to fall into an ‘at risk’ category if they were to become unemployed or fall upon hard times,” Ms Levine explained.

“Because of these measures, the impact of COVID-19 is yet to be fully felt, but we already know there will be significant pressures emerging when the support ends.”

The researcher also pointed to employment data by Roy Morgan, which showed that an estimated 11.2 million Australians have experienced some change in their employment due to the pandemic – with the majority experiencing negative changes, including reduced hours or loss of work.

“Over the many years of our research into mortgage stress, the data shows clearly the loss of a job is the biggest driver of increased mortgage stress as the reduction in income causes an immediate jump into a ‘risk’ category,” Ms Levine said.

“Over two in three mortgages rely on more than one income, and our analysis shows losing even the lower of these two incomes causes an immediate quadrupling of those mortgage-holders considered ‘at risk’ or ‘extremely at risk’.”

With JobKeeper being reduced in early October 2020 before being completely stopped by April 2021, coinciding with the banks’ deferral period ending, Ms Levine pointed to stressful times ahead.

“One of the biggest tasks for banks during the present period is to determine which customers will be able to return to paying their mortgage in the period ahead and which customers will not have that capacity when the deferrals end early next year,” Ms Levine concluded.

If you have any questions or concerns about your existing loans, need further guidance on hardship assistance, or have other questions about your loan arrangements, you can arrange a convenient time to speak to Jesse Bruno, our mortgage broker at CentraMoney by clicking here

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