Australia’s mortgage time bomb hits $176 billion

The Australian Bankers Association (ABA) has updated its loan deferral data to 19 June, which reveals that 779,458 loans have been deferred across Australia, including 485,063 mortgages:

In value terms, $236.7 billion of total loans have been deferred, including $175.6 billion of mortgages:

According to the ABA, one in fourteen mortgages are currently being deferred by Australia’s lenders for up to six months.

The huge number of loan deferrals continues to raise concern that Australia faces a repayment cliff once the grace period is over:

Australia’s banks have given six months’ grace to thousands of customers… The big question now is what happens when the scheme runs out in September – because it is clear that the economic slump induced by the crisis has some way to run…

The looming economic cliff edge is causing alarm throughout the country, including at Sydney’s Martin Place, where the Reserve Bank’s experts have been preparing for the worst…

“The bigger issue is what happens at the end of the six-month pause if someone still can’t make their mortgage repayments. The clock is ticking for these customers who haven’t been able to regain employment and probably feel like they’re on borrowed time” [ RateCity research director Sally Tindall said]…

In addition, mortgage stress is on the rise, with 37.5% of homeowners under pressure as opposed to 32% before the crisis, according to research by Martin North at Digital Finance Analytics…

This could also coincide with the withdrawal of emergency income support like JobKeeper and JobSeeker, in the event that the Morrison Government sticks to the legislated late September expiry date.

A loan repayment cliff coinciding with a welfare cliff is obviously a scary prospect for both the Australian economy and the property market, which are currently existing in an artificial bubble.

Leith van Onselen

Comments

  1. In June 2000 there was roughly $200 Billion in outstanding loans in Australian mortgages. Today that figure is around $2.1 Trillion. There are 6 million loans – of which 800k are officially paused – almost 1/6th. 10% of the entire mortgage market is on pause.

    I would strongly suggest that this “paused” figure does NOT include any mortgage which has negotiated to reduce their repayments to almost nothing, or interest only, nor does it include the loans which were so toxic they have been moved onto the governments books.

    You can triple that figure.

    https://www2.deloitte.com/au/en/pages/financial-services/articles/mortgage-report.html

    • Jumping jack flash

      many

      I like how you found the 2000 total of o/s mortgages. I’m looking for one from 1996, from before Greenspan decided to perform the unthinkable and turn the system inside out, but the 2000 figure is a good find.

      you can clearly see from the graph in the article that the difference between the 18% growth and the 15% growth was all that was needed to completely stall everything.

      And that hiccup at the end of the chart is the reason for everything we are experiencing today. The growth has gone. They need to restart it. We need 7 trillion in debt by 2030 to reverse the slide and usher in a new golden age of debt. I don’t know if we will get there.

  2. And any analyst that says house prices are going to rise or fall 5% only should just be laughed at
    And I get told I’m extreme when I say the banks will collapse
    I think you are extreme if you believe they can survive

    Listen THIS IS NOT A PROBLEM FOR PEOPLE WHO CANT PAY THEIR LOANS
    This is a PROBLEM FOR THE BANKS

    That’s what is scaring RBA
    How do they save the banks

    We need to start having a discussion about what we do about the AUST BANKING SYSTEM

    Start preparing for mergers restructuring etc

    And the cxap I got from you all when I said the banks are going to collapse = open your eyes up,
    Come on down J Adams the country needs your advice

    1 in 14 make it 1 in 7 and continue in this direction over time

      • Jumping jack flash

        Agree. It is a debt eligibility issue.
        Somehow make more people eligible for larger piles of debt without raising risk – well, so long as LVR is ok there is no risk, and the faster more debt is applied the faster the prices rise, and the better the LVR becomes.

    • billygoatMEMBER

      No stress
      No banking problem too big that can’t be swept under proverbial rug
      OR
      Kick the can further down the road….
      Have you crossed the Nullarbor?
      Driven outback SA NT FNQ NSW WA – Gun Barrel Hwy, north of Bendigo, west of Ballarat, BIC high country????
      We are the land of the wide open road…cans turn to rust then dust & disappear into the earth to be recycled & exported by next generation to whatever nation is rising under that Millenia.
      Oz is the great green, environmentally sound recycler – none live long enough to see it:))
      Ashes to ashes, dust to dust….You know Major Toms a junkie:))
      Earth provides always has always will.
      Just say CC

    • truthisfashionable

      I know my first thought is always let them collapse. No point keeping a bank that can quite literally create money out of nothing and charge interest on it afloat if they managed to screw that up. But thinking of the employment feedback loop, I looked up approx. how many employees each bank has*:
      Commbank ~45,000 employees
      ANZ ~28,000 employees
      NAB ~30,000 employees
      Westpac ~40,000 employees

      Looks like even just one of them would add 0.3 to the unemployment rate.

      *I hope I haven’t jinxed these employee numbers.

      • SoMPLSBoyMEMBER

        I say let ’em cave!
        They’ve ruined Straya for the betterment of their ‘shareholders’ and their time has come as they can only expand to the point of detonation ( it’s how it goes with that biz model).
        BC’s right! They are weakening by the moment and if ever there was a time to get the silver bullet and silver ’round-up’ to kill their roots, it’s now!
        With PFH’s guidance and a fresh look and understanding by the ignorant masses who know no other model for banking, we could finally ( after centuries of trying) install a workable banking system for the contemporary world.
        As for the heavy number of affiliated ’employees’ of the banking monstrosity, 85% are there only to lend an air of credibility to the criminal and extortionate activities-superfluous and like most, they’ll have to deal with it.
        As long as we have to participate in one of the largest societal upheavals the planet has ever faced, it’s a pefect time to distinguish between what is proven toxic and what can work for our collective future.

        https://www.vox.com/the-highlight/2019/9/24/20872558/california-north-dakota-public-bank

    • I work with someone who used to be a senior exec at a big 4 bank – they seem very sanguine about deferrals and arrears as historically there was a very large % of borrowers who were ahead of their mortgages.

      In fact, borrowers getting behind is seen as a positive way to increase the loan book via a reduction in the offset balance.

      I think it is a delicate dance, but the “glass is half full” still pervades thinking on this topic. Increasing loans to consumers has worked well for the big 4 in the past, the question is whether it is a winning strategy in all market environments.

  3. LOL
    banks will pretend they are trying to help although it’s hard to see how they can have any real interest in helping

    the only way for banks to continue their golden age is quick deleveraging followed by new wave of credit boom

  4. If you have redraw offset home equity buy a 4WD and camper van caravan with cash buy little pieces of gold in case you need to take off to the outback

      • Who knows
        We are back to the same discussion we had in January
        Think you have to run both ways long short equities etc
        But I understand people can’t do that
        They want to get rid of notes so cash in notes is risky too
        Maybe very short dated Aussie bonds but I don’t trust politicians and government either
        It’s very hard you have to be very careful now
        We are setting up for the BIG SHORT again but this time will get really ugly

        • I’ve been tipping banks to go under since bubblepedia days. Safest place to keep your loot is off shore. Park it in an overseas bank account. It’s not illegal. You might make stuff all interest but you’ll sleep easy.

        • I’m in the same discussion on here since 2011. And then with the data before that back to the late 1990s. I’ve since realised the problem was with me. Free yourself from what should be to what ‘is’.

  5. @ jumping jack flash
    Re your comment about people extrapolating $10 M for Sydney
    Have a look at Brett’s house, that’ll be closer to $10,000 than even a million let alone $10 M

    Peoples perception of reality is just laughable

    • Jumping jack flash

      Agree it is absurd, but if we extrapolate using their “double every 7 to 10 years”, then medians at 10 million by 2050.

      Over that time, if we import millions of people, both type 1 and type 2 immigrants, the type 1’s do qualify for the enormous piles of debt that are required to make this a scenario a reality, the type 2’s are used to steal wages from so their employers can add a bit more debt to their piles to make this scenario a reality.

      Add to that the necessary QE and NIRP and UBI and whatever else they can think of to raise the amounts of debt that are eligible to be obtained with the same 2020 wages in 2050, and theoretically, we may be able to do it!

      Half the population, including all the type 2 immigrants live in favelas or slums, but who really cares where they live so long as they can turn up to work on time and work for 20 hours at $5/hour, and the other half live in the 10 million dollar median houses.

      Success!

      • boomengineeringMEMBER

        Doomsday fund, the safest place for savings. Being one of the few that agrees with the thrust of your comments (I have an anomaly ) there is no other safe place (sorry gold bugs). The option for homeowners owning outright is to ride it down to downsize later as contrary to Harry Dent & et al, the difference once the slide has stopped will be greater between existing and downsized. If mortgaged, sell now, if renting status quo but watch out for your savings. If upsizing and own outright then IF you are able to hang onto your savings, they will buy more. Other than the Doomsday Fund, RE will be one place to retain some of your wealth as it will always be worth something. This is why the Chinese buy Australia knowing the price may fall 60% plus as this is still better than leaving wealth in China where zero could end up their nett worth. Disclaimer being if hyperinflation arrives and IF you can hang on then stay mortgaged to the hilt, But BIG IF you can hang on.

        • boomengineeringMEMBER

          You see its much harder for Gov’t to take your PPOR house than it is to take your money, gold etc. If owning outright you could sell now but caveat being how to protect the large amount while you rent.

          • Jumping jack flash

            I’m not so sure about that.
            But to investigate that rabbit hole we are getting into things like the illusion of freedom, the illusion of choice, and the illusion of ownership, etc, etc.

            If we truly are entering a new dark age, and maybe we are, or maybe we will be able to find a solution to this that doesn’t simply make it worse later, then if push comes to shove we will all have little more “rights” to anything than peasants and/or serfs.

    • Goldstandard1MEMBER

      Yeah I like that. Based on BoomE’s definitions I’d be a renter to upgrader so interested in saving the power of the cash any way possible. I’ll buy more in the future but renting is the right choice this year as the biggest reason not to rent has diappeared (being kicked out).
      Many of my mates see the share market as the only place to save the value of their money, that’s just too risky for mine at the moment.

      • DominicMEMBER

        The share market the past 4 decades has largely been a reflection of inflation but if inflation ramps up a gear or three you can expect gold to markedly outperform shares in real terms.

        It’s a little know fact that over the past two decades gold has significantly outperformed shares.

        • boomengineeringMEMBER

          Too true Dom, I was talking physical gold that can’t be hidden from the confiscator due to records of sale. We are talking bcnich’s worst case scenario.

          • Correct me if I’m wrong but I thought previous confiscations happened when the dollar was backed by gold, how can they expect people to hand it back in for a fiat currency that has no value?

          • boomengineeringMEMBER

            roffnar,
            FDR weeks after the confiscation deadline was reached, devalued the dollar by 70% meaning that they will buy it back then make the dollars that they gave you worthless.

          • “You see its much harder for Gov’t to take your PPOR house than it is to take your money, gold etc.”

            I like to believe this, but at the same time I question it. A property industrial complex like the one we have, they could just levy pernicious taxes then use the cops to collect. That is the “real” backing of government fiat – violence. Yes I know this is major tinfoil hat stuff, but we have to consider every plausible scenario, no matter how improbable.

    • working class hamMEMBER

      If you are talking hyperinflation, I can’t really see any kind of safe haven apart from property.
      Being as liquid possible until it starts to hit? Haven’t really dealt with anything like that, I’m assuming it doesn’t happen overnight.
      Hopefully the housing market tanks before this could happen.

  6. happy valleyMEMBER

    Lower teh rates and rape retail depositors again to fix the problem. That always works for the RBA happy clappies and private banksters.

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