About 9 per cent of all housing loans were subject to repayment deferrals at the end of August, raising fears that once government coronavirus relief tapers off, a flood of homeowners could be forced to sell, putting more pressure on declining property prices.
Government support packages have provided support to workers, who have been stood down or lost their jobs because of the pandemic, as well as businesses that have seen their sales plunge.
The government has extended JobKeeper payments for a further six months until March 28, 2021. However, from September 28, eligibility was changed to be based on actual business turnover in relevant periods, with payments stepped down and paid at two rates (for full-time and part-time workers). The rates will step down again from January 4.
Martin North, founder of Digital Finance Analytics, says he expects mortgage defaults in the months ahead, given unemployment rates are likely to stay high, perhaps for years before the full economic effects of COVID-19 are behind us. The Australian Bureau of Statistics said earlier this month the national jobless rate stood at 6.8 per cent.
North says senior managers with big mortgages have joined the ranks of the unemployed.
Lenders’ initial six-month mortgage payment deferral periods are coming to an end for many borrowers and lenders are offering deferral extensions of up to four months for those who are unable to resume repayments. However, what happens after that remains a major concern.
Homeowners exiting deferral arrangements outweigh mortgages coming under new deferrals, so the total amount owing is decreasing, though only slowly.
Australian Prudential Regulation Authority (APRA) figures show that as well as $160 billion worth of mortgages still being being deferred, small- and medium-sized businesses have been hit even harder. About 16.2 per cent, or $53 billion, worth of small business loans are now on a repayment holiday.
North says about a third of smaller businesses have their loans secured by the owner’s property. If these businesses close their doors, lenders may foreclose on their homes, forcing many onto the open property market.
The biggest risk is that those who may be forced to sell could do so at a time when property prices are already under substantial pressure from the pandemic, particularly in Sydney and Melbourne.
CoreLogic figures show that at the end of September, Sydney dwelling prices had fallen by 2.9 per cent from their April high. Melbourne prices are 5.5 per cent lower than their March high; though questions have been raised about the accuracy of the figures as a result of sellers withholding or delaying “bad” sales and auction results.
Tim Lawless, head of research at CoreLogic, says there are no signs yet of distressed property sales.
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“In fact, the opposite seems to be true, where new listings are being absorbed by the market faster than the rate at which they are being added,” he says.
However, the trend would be important to monitor over coming months as government support tapers and the situation of borrowers taking a repayment holiday is assessed by lenders, he says.
“A rise in ‘urgent’ or ‘distressed’ listings would provide a further test for the resilience of housing values,” Lawless says.
North says those homeowners who continue to have their repayments deferred and are worried that their finances would not return to pre-COVID-19 levels should have a “good look at their cash flow and cut back on discretionary spending”.
“They should be prepared to negotiate with their lender [on solutions], rather than just leaving it in the hands of their lender,” he says.
North says options include restructuring a loan by converting to interest-only repayments or extending the loan terms.
This article is republished from brisbanetimes.com under a Creative Commons license. Read the original article.
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John Collett Writes about personal finance for The Sydney Morning Herald and The Age.
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