Aussie banks extend mortgage repayment freeze

Australia’s banks have pledged to continue to defer mortgage repayments for customers struggling financially during the COVID-19 crisis.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg met with bank CEOs and the RBA Governor on Friday and confirmed that additional support will be provided to those that need it.

According to the Australian Bankers Association, nearly half a million Australians – representing one in fourteen borrowers – have deferred around $176 billion worth of mortgages.

Repayments were scheduled to commence from late September, around the same time that emergency income support was set to expire.

The decision to extend mortgage repayment holidays comes amid concern from the banks that around one-in-five borrowers that delayed repayments are in deep financial trouble:

Major banks are bracing for a savage increase in problems in their massive mortgage portfolios after preliminary investigations suggest up to one in five home loan borrowers who have asked for a repayment holiday during the coronavirus crisis are in deep financial strife…

This suggests that some 96,000 borrowers, with mortgages worth almost $35 billion, will end up in the banks’ intensive care units…

These borrowers have typically lost their jobs as a result of the coronavirus, which means they no longer earn enough income to meet their mortgage payments.

Unless a V-shaped economic recovery can magically be engineered, banks and borrowers will sooner or later have to face the music.

Those struggling to repay may be better-off selling while they can before property values fall further.

Leith van Onselen

Comments

      • MountainGuinMEMBER

        When the govt is leading these discussions I do wonder if taxpayer based promises are being handed out.
        As an aside, if someone lost their job and had huge debt and no house equity, maxing out things like afterpay before claiming bankruptcy in a few months may be an attractive path for some.

    • happy valleyMEMBER

      … while at the same time, the banksters thanks to the RBA happy clappies screw retail depositors on deposit rates, so that the banksters can get their bonuses and full dividends for excess franking credit “refund” leaners are able recommenced (to keep the second most important bunch of people happy, after of course bank management)?

    • this is not kick down the road ….
      for house prices not to crash credit needs to grow and needs to grow fast (around $200bn per year)

      this is barely a slight braking … preventing defaults before RBA buys all the junk mortgages from the banks

      with cases on the rise and toilet paper gone from the shelves real estate in this country is doomed and government doesn’t appear to be even slightly disturbed by that … in fact government appears to be sitting on a side, doing nothing and enjoying the spectacle

      • Jumping jack flash

        This for sure.

        7 trillion debt dollars by 2030 to get back on track and resume the 2006 golden age of debt.

        We are behind by about 600 billion debt dollars presently which completely explains the current and ongoing problems we see and have seen for the past few years. It is getting very serious.

        Someone is going to need to fill that void somehow, as much as possible, either the government, or the people, or both, and then keep taking the debt to new, never before experienced heights.

        Everyone, do your part. We all need to take on the debt that is essential for the good of the country!

        • Hmm I’m kinda getting ready to become a mortgage slave in the next 18 months, but I’m only prepared to get a 100K, 120K max mortgage as a single middle aged low income worker (and I’m starting to get concerned I may not be given a mortgage despite having a 40-60% deposit, but not losing any sleep over it). Somehow I don’t think my intended contribution will do much to help the situation.

          • Jumping jack flash

            best of luck.

            I am personally looking to take on my enormous pile of essential debt within the next 6 to 8 months. I figure whatever the trajectory of prices will be, up, down or sideways, it should be fairly obvious by then.
            I am kind of hoping that the banks will refuse me.
            From what I have heard, debt is getting very hard to get.

        • Good luck to you too! Yeah I think you’re right in that we will know by then the direction of prices. I am also ambivalent about being approved/refused. I just want somewhere in the country where I can live in peace and grow veggies and fruit and earn a small amount of dosh. I’d prefer to build something to my requirements but that is probably going to be more expensive. I’m kind of hoping Vic/Tas gets smashed and land prices go down in rural areas, though I do not expect this to happen. I’m not expecting more than a 20% drop at best. If I get refused a mortgage then I’ll have to super compromise on location and quality, but I could buy something outright somewhere, esp in another 18 months if prices haven’t changed too much from today.

      • Dr X,

        Credit does not need to grow for house prices to grow. I believed this 6 years ago. It’s wrong.

        Credit growth generally follows price growth. NOT the other way around. Understand that, and everything will make sense.

        • BrentonMEMBER

          @Les, as we’ve discussed many times in the past, you’re wrong.

          It doesn’t even make sense, as it is only credit availability that allows someone to bid for a property; eg someone doesn’t go to the auction, win it and THEN ask for financing.

          You saw what macro-prudential (credit tightening) did to property prices in 2017… credit was crimped and prices crashed (still hasn’t recovered from that investor credit crunch)

          • Jumping jack flash

            indeed.

            No debt, no prices paid. How else does the money appear to be able to pay the current inflated prices?
            Its certainly not savings.

            Who has a million in savings to buy a median Sydney house? And if they do, how did they get it? More than likely it was someone else’s debt pile they’re using as savings.

          • Price growth requires net new buyers Brenton. Only.

            Credit growth is a follow on effect.

            Net new buyers: foreigners, immigrants and to a lesser extent, FHBs.

            You will get it one day. I know you will.

          • @JJF
            Spot on mate.

            @Les
            How do buyers purchase a house? With a mortgage (credit). If you cant get a mortgage, you cant bid up prices.

            It’s why RoC in credit perfectly aligns with the property cycle, while your crap has no correlation with the property cycle; ie it is the availability of credit that drives prices.

            Someday you’ll get it.

        • @ Les
          Net new buyers: foreigners, immigrants and to a lesser extent, FHBs.
          You will get it one day. I know you will.

          why did than prices fell in 20017/18 when immigration was at the peak?

          sentiment has its place but without credit growth it’s futile and quickly turns – credit is needed not only to pay ever rising prices but also to pay interest of the rising debt – it’s a positive feedback system that needs strong source of energy – power supply – credit, to work

          you may see some time lag of credit – but that’s because of accounting – credit officially gets created at the settlement date which is 2 months or so after sales date despite being approved before the sale … this is even more extreme in case of off the plan where credit officially gets created a year or more after the sales date but at the time of sale credit has to rise and be easily be available for people to decide to buy

      • GlendaFMEMBER

        And when the Govt/RBA own all the ‘bad’ loans (how many wil that be?) then what?
        I’ve already asked the question in previous posts, if the owners of these properties no longer have to pay their mortgages, and still get to live in their houses for free (or close to it), how long before the rest of the population who are still busting their rear ends to meet their payments get jack of the two tier system?

        • DominicMEMBER

          The answer to your question is: who knows? How far are the authorities willing to go before they give up? Will they ever give up?

          Once the RBA own the dud mortgages they effectively have title over the properties on which they’re secured and given they bought the mortgages with printed money do they really care whether they ever receive a cent from the mortgagor, so yes, feasibly the mortgagor could continue living in said home for quite some time.

          Let’s be frank, the future looks like this: central banks will outright monetize both Govt bonds (to fund deficits) and mortgage backed securities (to save the banks from capital impairment). This will continue until, eventually, the currency is reduced to confetti, in value terms. That is when this game ends.

          • Ivanka LottMEMBER

            Exactly – we are accelerating down a steep slope with a brick wall at the end.

          • These are good points. If Australia’s only true QE was that the RBA bought up all the bad home loans in some spurious securitisation then that wouldn’t be an insurmountable cheque for it to write.

            All the acquired mortgages could become debt for equity swapped and be dipped into a social housing portfolio …… oh wait the LNP wouldn’t have that. Just the bail out bit for the bankers.

            For the rest of us …. “Let them eat debt!”

  1. covid19 will not any time soon … banks better to start planing for some good way to market defaults
    they could call it “permanent deferral with conversion to rental payments”
    LOL

  2. What I’d like to get is data on breakdown of loan type being deferred OO or IPs.

    Are clients who have a couple of IPs getting derrerals or extended ones or being asked to deleverage

    • correct. I suspect clients with multiple IPs are being forced to sell. But this will be gradual process in order to avoid bloodbath. Anyone with half brain will sell now.

  3. Easily predicted. Commenters on this blog are intelligent but they need to stop masturbating over some imagined property crash fetish and start understanding what the Australian government’s priorities are and learn to adapt.

    • so far government did nothing to prevent house prices falling … and they had 4 months and a great excuse … yet they deliberately chose to save other things (like stock market, banks, construction industry, retail, …) rather than house prices

      • Jumping jack flash

        Houses are just a bucket to fill with debt. The house prices secure the LVR and mitigate the risk. If the goverment can find alternatives for that then house prices are irrelevant.

        If the government borrows enough debt from the banks then the banks wont need the houses or house prices at all. They are a means to an end and the end result is the banks get richer. Houses were an easy way to achieve that but certainly not essential.

        It was a useful mechanism while governemts everywhere were on that curious phase of debt minimisation over the past couple of decades.

        That said the government probably would find it tricky to take on that much debt but in the age of QE it is probably possible.

    • I wouldn’t be so sure about that drx. Pretty much everything the government has done since it has been elected is to support RE prices.

      This covid drama has been the impetus for a fckload more obscure measures and behind the scenes plays.. all supporting the re industry.

      • agree.
        However, you might be wrong on property crash bit. I think it is happening right now. Look how many price withheld.. if all prices are published you’ll find we are in the middle of a crash.

        edit – my point is – yes, this gov is trying to protect prices but it’s not working and they know they can’t do much about.

  4. So, my theory is that they are doing this until house prices rise then the borrower can sell and the banks get all their money back. If this doesn’t happen then the tax payer will cover the costs.

    What this also means is that if house prices never rise again anyone who wants too can get free accommodation for years by simply buying a house, leaving their job, then get a deferment forever. The key here is not to get another job, just sit on Jobseeker and do cash or BTC jobs till your hearts content.

    • Jumping jack flash

      Unfortunately the banks are onto this. It is currently quite difficult if not impossible to obtain debt.

      Someone i work with has 80K deposit and is easily within the 80%LVR and no debt for her due to the coronavirus upheaval.

      There may be other issues but at face value it seems the banks are very cautious

      When i put my bowl out next year to be graciously filled with debt i will see how i go but I’m not holding my breath.

  5. I actually can see banks cost of funds going up.. especially for those loans they are opening claiming people are in “deep financial trouble” and “have lost their jobs and no longer earn incomes that can pay the mortgage”.. And now the banks are going to extend and pretend.. if investors had a brain they would ask for a higher premium for this risk. But then again it had been crazy times.

  6. A question – where does all the risk lie? I mean, what type of entities own/are most exposed to MBS defaults? Be great if someone could explain that to me thanks.

  7. It used to be “rent to buy” now its “sell to rent”.
    all those landlords can only agree that its ok to rent, cause that’s what they’ve been putting on the table.
    they can all burn, and the banks.. everything that facilitated this. burn it all.

  8. Jumping jack flash

    Completely unsurprising turn of events.

    The next step will be extensions to JobKeeper or a subtle rebranding.

    Then a lot more stimulus, total value around 600 billion over the next 12 months, paid for by QE. Or maybe more super spending?

    If that doesn’t get it going then i expect a US GFC-style solution of banks repossessing and hoarding risky properties.

    • Sexy SydneyPlumber

      Weekly, permanent, KRudd style $900 cheques to all citizens is the only way to save Property Prices and the Economy!
      Itd be sure to drop the dollar to 50c and give our few remaining exporters a leg up too!
      Whats holding them back?
      Are the LNP prepared to do what it takes OR are we to see Average free standing House Prices drop below 300k in all our capital cities.

  9. working class hamMEMBER

    The sentiment has begun to shift. The best the govt can do is extend the time before foreclosures/heavily advised sales begin.
    Best outcome now is stagnation for years until inflation and expectations catch back up with the market.
    Insolvency laws temporarily halted will provide further support to downward pressure on sales, once reinstated.
    What the govt response is, will as usual, be highly entertaining.

  10. Display NameMEMBER

    When is the next election? Can they keep the deferral going until then?

    Big ask I suspect. They are going to have to come up with another way to kick the can down the road. Or let the market sort it out. Sorry I forgot, we dont do markets unless prices are rising.

  11. And here’s me thinking they couldn’t come up with anything more stupid than IO loans. Turns out you can just defer all the interest. Pretty sure the banks are still making their profit margins from taxpayers directly.

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