Mortgage repayment cliff beckons

A Senate committee has been told that businesses and households have now deferred around $250 billion worth of loan repayments due to the coronavirus pandemic. However, Australian Prudential Regulation Authority (APRA) chairman Wayne Byres conceded that some customers will not be able to repay their loans when they are required to resume repayments:

Australian Prudential Regulation Authority chairman Wayne Byres told a Senate committee… “we don’t want to put pressure on a large group of customers at the wrong point of the cycle”…

“We often talk of the cliff, which is when everything ends in six months’ time. No one has an interest in going off the cliff, so we have to work out what the next phase is going to be and that will be dependent on the economic situation at the time.”

Indeed, the Australian Bankers Association (ABA) last week revealed that one in 14 mortgage holders have had their repayments deferred, totaling more than $150 billion worth of mortgages.

At the same time, several lenders have begun tightening financial requirements on mortgages:

Lenders say the new conditions are in response to the impact of COVID-19 restrictions on self-employed workers.

Categories facing tougher terms are likely to be widened over coming weeks to include those being hit by job losses, such as construction.

The mortgage repayment “cliff”, alongside tightening credit availability, is a clear downside risk for Australia’s property market.

Easy credit was behind much of the meteoric rise in Australian property values. Therefore, any contraction of credit and/or forced sales will necessarily weigh on the market.

Unconventional Economist
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  1. Goldstandard1MEMBER

    But thankfully the cliff has tiny green shoots growing around the very distant river at the bottom.
    Wile E. Coyote “HELP!!!”

    • It’s all good. ScoMo will use YOUR taxes to make sure HIS mates are looked after. Back to work, peasant!

      • Your taxes won’t get then very far. I have seen people at MB bemoaning an annual personal tax bill of 60K per year.

        • I pay more tax than some corporate megaliths on Michael west’s list

          So yes, I bemoan

          • And so you should. Certainly, your taxes should not be used to hand to property developers and other corporate welfare.

  2. But every time the economy slows, the answer – according to economists and central bankers – is to make credit even easier, in order to boost ‘aggregate demand’. This is stock standard, contemporary economic theory. Complaining easy credit is to blame, on the one hand, but then demanding more, on the other. Wtf?

    This is the crux of the problem with modern economics. It’s tying itself in knots and then spends its time trying to justify all the paradoxes that arise. Not once does it dawn on anyone involved that if a paradox exists, then perhaps the theory is faulty.

    • Perhaps the theory is faulty???? Nah, coudln’t be, move on and roll out that cash….it’s worked so great already, just put more into it this time and it’ll all be hunky dory!!

    • Jumping jack flash

      “make credit even easier”

      The main problem is while the government caved in and gave the banks QE, in response the banks tightened debt eligibility criteria, not loosened it.

      QE creates debt *potential* but it still requires people to be willing and eligible for the banks to hand it out so it can be used.

      If we don’t get something soon to get people motivated for debt, and over the eligibility criteria bar, to unlock access to all the QE-created debt, I will be very surprised. I think the banks will be too.

    • Instead of making credit easier ‘they’ should just give everyone (citizens) over 18 a house. Most of the $ hitters that pass for housing wouldn’t be worth more than 80K in labour’s & materials – esp if sourced from chai nah:) This would negate the need for $250 BILLION debt dollars to be repaid.
      $250 billion divided by $100k would go close to pitting roof over average humans head especially given that most places already built and just being traded on debt & lattes. Am I missing something?

      • Yes you’re missing the bit where if people just had houses, they wouldn’t feel as compelled to slave away for moron bosses for 40 years of their lives.

        There are a number of important people who would be displeased by that.

        Basically, the issue is with distributional effects.

      • Jumping jack flash

        Apart from the fact that total outstanding mortgages are around 2 trillion dollars, unless you’re talking about just the total yearly mortgage repayments (P&I), they do this exact thing in Kuwait when you get married, as far as I know.

        Have to be a citizen tho, of course.

    • Trick may work again, maybe if government continues paying billions to people without a job and banks use that income for credit assessment

      I don’t think scomo has $5bn per week for jobkeeper and for any housing stimulus at the same time

      • That’s right – I’ll be interested to see how big he can go with housing stimulus given what he’s already shelled out for Covid and what other experts are compelling to cough up going forward – hardly jives with a healthy budget position in the medium term future.

  3. “so we have to work out what the next phase is going to be and that will be dependent on the economic situation at the time.”

    We are hoping like hell that everything magically picks up and a new boom starts.

  4. sounds like APRA doesn’t want to put too much pressure on people ‘at the wrong point of the cycle’ … WTF is that supposed to mean? we don’t want to have to force people to repay their debts along the timeline that they have agreed to pay them on? sorry? come again? Should government just repay everyone’s mortgages out of the public purse? Would that do it for you APRA?

    Time for some unhindered Aussie property price realisation in Sydney and Melbourne/

  5. Isn’t this really forbearance ?……..deferring payments would be cutting a gap in the mortgage and tacking on another 6 months at the end.

  6. 🏑Astro alert🏑

    Forewarned is forearmed. This is very forseeable, so I will be floored if it’s not taken care of by the time that it rolls around.

    We’ve seen these loan cliffs before (eg the IO one here recently). They tend to turn out to be non-events.

  7. david collyerMEMBER

    Lender forbearance can only extend so far and so long.

    While the RBA has set the liquidity tap at wide open, it is intermediated by the banks who have a fiduciary obligation to only lend on sound propositions. After a year of looking away, the banks will then need to review borrower circumstances and unwind the insustainable.

    In the 1989-91 recession I exchanged a one of a pair in St Kilda + $40k for a family home in Brighton. The mumble then was, the ANZ owned half of Brighton. They cleared this, not with mortgagees auctions, but with double the normal volume on offer for about two years. The properties were typically well-worn and needed renovation. The only distinguishing marker was the agent’s board would come down Monday morning after auction – usually they leave them up fo a few weeks – and a fresh board would appear on a house up the street.

    My dataset was 9 month old Vic Valuer General publications and lagging ABS statistics. Yet even these made clear the phenomenon before me.

    Y’all may regard this as anecdata. Fine. But I saw. And I acted.

    Don’t Buy Yet!

      • blacktwin997MEMBER

        No, what he’s saying is that you need to build a time machine and then go back to 1991 Brighton. Duh.

        • Yeh, that’s what I thought he was saying.

          Maybe we can use those hallowed documents from the Valuer General – 29 years and 9 months old now, but should be good enough to get a serviceable time machine built.

          • you go back, buy the houses, then sell them in 2017 to fund the time machine, which will be ready any day now..

          • The Traveling Wilbur

            The best bit was 6 months ago when I reminded Peachy to read bda2206’s comment above *very* carefully.

          • blacktwin997MEMBER

            Sorry, my mistake. But why stop at 1991? If we had 50 years’ worth of the sacred Valuer General’s documents i bet we could go back as far as 1981! And goodness knows i’ve made some mistakes since then which could do with time machine facilitated rectification. First off i’d just plan better, like the esteemed Dr Professor Liz ‘Maggot Bin Chicken’ Allen but with less focus on fat kids watching TV.

      • Evidently. He even changed the decade old slogan to “Don’t Buy Yet”, as opposed to “Now”. The point is to wait for the time machine to take you to “91.

  8. Jumping jack flash

    “Australian Prudential Regulation Authority (APRA) chairman Wayne Byres conceded that some customers will not be able to repay their loans when they are required to resume repayments.”

    *sniff sniff*
    Smells curiously like propaganda to extend JobKeeper… From APRA this time. Well, well, well.