Mass mortgage defaults loom as income support cut

Mozo research believes that Australia is staring down the barrel of mass mortgage defaults once income support measures like JobKeeper and JobSeeker are cut:

Around 3.5 million workers are receiving JobKeeker payments and 1.6 million are relying on JobSeeker. This means approximately 42% of Australia’s 12.1 million-person workforce is being supported via these government schemes.

Mozo’s data showed the vast majority of these people (92%) require this support to remain financially stable. In addition to the worrying housing situation, a third of surveyed income support recipients said they would not be able to afford to pay their bills if the payments stopped, with a fifth also unable to cover the cost of groceries…

This amounts to approximately 1.3 million Australians potentially unable to keep a roof over their heads…

“With the jobs market on life support, JobKeeper and JobSeeker payments are critical in ensuring people can remain in their homes and have enough money to cover necessary expenses,” Mozo Director Kirsty Lamont said.

According to APRA research earlier this month, just under half a million Australian households had deferred a total of $192 billion worth of mortgages (11% of total mortgages) as at 31 May. Property investors are under particular pressure, with around one-third of investor mortgages deferred, according to APRA:

Separate data from Digital Finance Analytics (DFA) also revealed that the percentage of borrowing households experiencing mortgage stress was a record high 39.1% in June, equating to 1.47 million owner occupied mortgage holders experiencing financial pressure:

Investors are most exposed, with DFA noting that “a larger number of property investors with a mortgage (51.3%) are underwater from a cash-flow perspective… which suggests investors are caught in the financial crisis headlights”.

The rise in investor stress is especially pertinent given both rents and prices are now falling.

How long will speculators hold on to these loss-making properties when prospects for capital growth are slim and the labour market is so fragile?

While announced extensions to JobKeeper, JobSeeker and mortgage deferrals will help, struggling households are still facing reduced levels of support from October.

Thus, there is the clear risk that loss-making investors, in particular, could sell in large numbers, causing a feedback loop of further property price falls and forced sales.

Leith van Onselen
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Comments

    • TW
      Property investors changed their mind
      They want to return the property and cancel mortgage
      It’s not a good investment

    • two plus twoMEMBER

      Making interest payments was so 2019. Making principal and interest payments was so 1999.

  1. Anyone with a mortgage still on JobKeeper or the dole should be putting their house on the market not putting their hand out expecting more taxpayer money to pay for their investment.

  2. TailorTrashMEMBER

    If the property holders are so stretched who will be in a position to buy ..or can we fire sale the whole country to China ?

    • happy valleyMEMBER

      They are just sitting there waiting for the implosion and to get everything on the very cheap cheap.

      • 70% down and I’m in! Just need house to hit 3 times median income. (In Hellbourne thats 270K before wage shrinkage)

        • 3x income only works if you have a job
          You may be ok but at least 1 out of 2 you know won’t have a job
          For many investors they will never find a buyer to unload their investment property too

          • ArasakaMEMBER

            Certainly not for the price they will be asking. I’ve been looking at listings on the Central Coast where they are asking for more than they paid for in 2015-2017. It’s going to take a really long time for reality to sink in for these people.

          • boomengineeringMEMBER

            Arasaka,
            Make sure you look at the rates and charges as the CC can be higher than Sydney

          • It just takes time
            I know no one agrees with me but interest rates are going to rise, we all know unemployment is and will be very high in 12 months, no immigration and tighter credit

            Remember share market bounce has given confidence but over next 6 to 9 months we are going to test lows and break down into 3,000s, that’ll be a trigger too, this is just a doom loop of asset price destruction, Ponzi stimulus has delayed but won’t stop it in the end

            We are in a multi year structural decline in price of both residential and commercial property, we’ve seen the highs in the big cities in 2017 then 19 bounce

            Regionals will fare well relatively initially but will fall too eventually, all property in most part is in decline now

            The property party is over

            More so in big cities especially Melb, whether slow or fast is to be seen.

            Let’s watch over the next 6 months….

        • Jumping jack flash

          This.

          Hold onto your job. Better be something actually useful.
          The great purge is coming as soon as they work out the details on how the banks can survive it.
          30 years without a recession means theres a lot of dead wood to be pruned out.

    • Whoever sold them the house in the first place received the cash created by the loan

      • Which they repaid their existing loan with? It’s not a given that the cash stays in the System.
        One of the big aims of any form of QE; low interest rates, is to fend off debt retirement but it doesn’t look like it’s going to work.

        • Seems to be working so far since private debt hasn’t really contracted anywhere in the world post 2008

          • The increase in debt needs to cover the interest payments before it become inflationary though. There is only extra money after the bills have been paid.

          • You’re mixing up stock and flow

            Interest payments simply move money from one hand to another

          • it was working prior to 2007 when nowhere private debt contracted for years

            so it’s always working until it doesn’t

            BTW> most of sales money goes either into repayment of an existing loan or deposit for new loans, some small portion goes into purchases of imported stuff like cars or investments into other assets like shares. Very little even goes into anything productive

          • Jumping jack flash

            Banks dont contribute 100 billion new dollars back into the economy each year, that aren’t debt.

        • Jumping jack flash

          Exactly Janet, or funded their retirement.
          It is how this amount of debt was able to be created and how it was able to keep going for so long.

          It costs us 100 billion dollars every year to have this debt. A lot of that is/was offset from new borrowing. Keeping in mind this type of debt does absolutely nothing to increase income to repay itself.

          • Every time we have this conversation

            Money paid into Interest payments doesn’t disappear – it simply changes hands (from debtors to banks, and thence to share holders)

            Interest payments do not change the money supply

            Is this incorrect?

          • where does any money come from initially?

            It can only come from private debt creation, or government debt creation

            If we didn’t have any debt, we wouldn’t have any money

          • Rorke's DriftMEMBER

            Coming, my understanding is that interest goes to the banks, then shareholders, then foreign shareholders take their cut offshore.
            That is, money is created by banks lending the principal but not the interest. We have to compete with each other to earn the interest off someone else within the system and/or keep growing the pool of debt money to cover it. Foreign shareholder then skim off a cut of the profits each year reducing the pool of money, so it has to keep growing if everyone is to prosper. Once debt expansion slows or stops the scheme crashes.

          • Rorke’s drift: AUD can’t leave the australian banking system in any meaningful quantity

            If foreigners are accepting AUD dividends, they need to keep them in the AUD system or exchange them for their own currency

        • Yes but if the value of their property doubled or tripled in that time it has more than payed their loan. It is an unearned windfall profit enabled by the banks ability to create new money.

      • TailorTrashMEMBER

        And what’s the betting those who got the cash from the loan sunk it back in to “move up the property ladder”
        ….this is straya maaaate ……property maaaate
        We all want to eventually move to Mosman or Point Piper

        • The point is that money isn’t destroyed in aggregate

          It exists somewhere in the banking system

          • Yet.
            Some sort of debt (money ) write-off ( destruction) is headed our way, and as an asset for one party (the owner of the debt) that’s going to eviscerate their wealth and income-earning capacity.
            When that happens the repricing of assets is going to be spectacular.

          • Nah

            Someone defaulting or forced mortgage sale doesn’t destroy money

            All it means is the bank now has an asset (mortgage) that is non performing on its balance sheet
            The Bank can write down the value of the assets, which might make them insolvent , but it doesn’t change the aggregate money supply

            There is still the same number of dollars chasing the same number of assets

            If the banks are forced to recapitalise, that will reduce money supply if capital is sought from private investors, but it’s more likely that recapitalisation will be done by the central banks who will “buy” defaulted mortgages from the commercial banks

          • BrentonMEMBER

            Janet is correct.

            What good is it to house prices if a non-performing asset becomes stranded at the CB or on the BS of one of the Big 4? House prices are set on the margin by RoC in credit. As far as the average pleb is concerned, that is all that matters for them and for house prices.

          • ashentegraMEMBER

            Money is destroyed when principal is repaid and the asset held. Lots of that going on. Wont save their sorry asses as RE price falls exceed saving capacity. The ‘Gearers are toast unless Scotty from Marketing allows major releases from Super, which is only a matter of time.

            Reusa and the bon vivants at the relations parties have already sold down and are debt free, ready to snap up a chain of bargains – when property genuinely trades at bargain prices.

            Don’t Buy Now!

          • Jumping jack flash

            correct
            This is debt deflation. It is a real thing. We’re experiencing it right now.
            Debt went from 2.4 trillion (oct 2019?) to 2.1 trillion in Feb to 1.8 trillion now. Thats some serious deflation.

          • brenton: All that matters is the expansion of credit, and money supply. Bankruptcies/nonperforming loans have no direct effect on this

            jumping jack flash: offset by public debt creation
            Money supply is increasing

          • Jumping jack flash

            “offset by public debt creation”
            Hahaha!
            Seriously.
            The emergency stimulus? 400 billion? it is close, i agree but certainly didnt start in october.

            Well if thats true then they’re going to need to come up with quite a lot more. And thats not the interest, just the principal, and not even.

    • TT, who will buy?

      Strayan Boomers. And they will buy for their kids also.

      There’s a shyte load of them and they have cash. They have so much cash that they don’t know what to do with it. It’s mostly tied up in super getting no returns in comparison to geared RE investment. So much cash that they think that putting it in gOLd is a safe investment.

      They couldn’t enjoy their Danube cruise or Aspen skiiing this year or the like.. An incredibly underestimated amount of cash in aggregate terms. Aussie Boomers chasing yields (ABCYs)

      • Lol, the only boomer game in town is property. Unless they have already downsized there is no cash, just vanishing equity that you bought the 100k European faux wheel drive with.

      • Aussie boomers are probably the most cash-strapped of all
        Almost all of average BB wealth is in equity and shares because they hate cash since it doesn’t return any income to be spend on Danube cruises

      • This. I am not sure if people appreciate how much equity there is in existing stock, or, availability of capital either cash or lending.

        Couple of local branch managers run me through some nearby towns – a very large % of stock was owned outright or had very very low gearing. They also mentioned the job/wealth profiles of these areas was low risk.

        Talking Northern Rivers.

    • Display NameMEMBER

      There is *always* a buyer at the right price.

      And that is the problem investors have ATM. The price isn’t going to be right for them but it won’t get any better any time soon.

      • Exactly.

        We sold our place JUST in time. A place near us on 15 acres, fully renno’d, detached studio with power and plumbing, awesome views, hilly country, 200 days on market. Wanted 769, ended up at 712!

        We’re now looking to buy and I think some vendors are still in the mindset of prices from 12M ago, no view of the impending JK cliff, nor any idea that it doesn’t matter if a house owes them X$, it’s the market offers that matter. Unless of course they can wait.

        • Mike Herman TroutMEMBER

          Hi Swampy, where in the Northern rivers was the property you referred to? Sounds like my kind of place…

  3. APRA stats are fake because most of mortgages issued since 2015 have been split loans making average size and LVR numbers much smaller than they are.
    friend of mine wanted a $1.2m loan in 2017 with significant down payment (>30%) but regardless got only an offer of a split loan – one $750k and the other $450k, when he asked why they told him they always do that because it gives customers flexibility to fix interest on a portion of the loan.

    So now in official statistics his loans have the lowest possible risk factor (average size of $600k, and LVR of just over 40% and LVR 25%)
    In reality he has $1.2m loan with LVR 70% that consumes almost half of his household after tax income

    do people who got loans in last few years have the same experience?

    • Display NameMEMBER

      Martin North has noted this on several occasions. In his surveys he looks at all debt, multiple mortgages to get a more complete picture of the market. Its a good way for the banks to obfuscate irresponsible lending, but the way I read Fraudenburgs and APRA’s statements the banks are getting a free pass anyway.

      • C.M.BurnsMEMBER

        Banks have gotten (and will likely continue to get) a free pass from APRA and the Government. But the poor schmuck (like DoctorX’s friend and all those Martin has spoken with) that borrowed to the very edge of affordability and are now really struggling, they don’t get a free pass from reality.

        I wonder what international credit markets are going to think when our banks start reporting that super low risk, low $ value and low LVR loans start non-performing because the single person holding multiple low-risk loans loses Job Keeper later this year.

      • Banks have been bailed out already by RBA so banks don’t care anymore.
        Others like blackrock with piles of cheap cash are looking into discounts to enter our property market …
        A 50% discount would suit them not only from a price perspective but also from a future growth one

    • Next year ?

      Pretty sure you watch Domain or something similar – the properties I am seeing listed just sit there – for months. Most since covid started.

      I see LOTS go “under offer”, “under contract” and sometimes sold. They all reappear as “New Listings” within a few weeks.

      I am just amazed at the level of outright fraud now permeating our real estate markets.

      • R
        I always say double the time because they seem to come out with some Ponzi scheme adjuster that drags things out longer and longer
        I’m not sure what city you are in?
        Even though investors can defer interest payments, the interest is building up. Tenants definitely asking for reductions
        I’m sure good homes will be bought for living but investment properties very hard to sell

        Where are you? And are you saying none of these properties are really selling….,,

          • Arthur Schopenhauer

            Seems to be they way from Fitzroy North to Eaglemont, and no doubt similar on the inner to middle South East.

          • Q
            Now in Melb you have to do online Auction, so if you have a face mask on and they can’t see your hand and all they hear is mumbling, what happens then
            Do they allow you to take face mask off for online and if you do can you infect people through the computer???
            Can the virus spread through ZOOM??
            If you try and get finance do you have to write the Q down ?? Or will it sort of be a GET SMART cone of silence scenario??
            If you are under 40 you probably missed the cone of silence, we may to bring a virus version of it
            This is all very confusing

        • Important distinction. OO/P&I who can look through this for a 20-30Y proposition for a family home on low LVR is different proposition from IPs…

      • codeazureMEMBER

        Agreed – this whole real estate market is like an iceberg at the moment. The agents let us see prices for the few places selling at high prices, but there is a flood of “price not disclosed” for all the places that sold at low prices. I’ve never seen so many. This market is a web of lies, even more than in previous years, trying to preserve the illusion it is still a functioning market.
        A couple of weeks ago, I saw online that a place in middle ring Sydney had sold for 10-15% below the normal price a day after it was sold. But this price disappeared within hours from all sites, replaced by “price not disclosed”. They really don’t want us to find out this is happening.

  4. Wonder if this will be like rhe construction jobs collapse that never arrives. Reckon they will be forced to offload properties before that happens.

    • div
      In Melb particularly they are finishing projects wait 6 to 12 months it’ll be a cliff. I’m sure regional will kick along

      • I see regional faring better than inner city Mel/Syd, up to a point. Regional markets will also be significantly impacted once the Keeper/Seeker winds back as true unemployment will then rise. Presently, there are too many business just hanging in there dependent on gov’t support. Availability of credit will also be a factor. Are banks more willing to lend in regional areas?

        • NAB lender in 2480 y’day told me no change to lending last 6M, no marked change in returned vals, never neen busier.

          Not sure if that was refi or new lending or what

          Noticing more rural acreage coming to market, some places sitting on market as stinky stock 60+ days barely budging on price. That tells me vendors are happy to wait longer for the right buyer to meet them, or will be waiting for a reality shock.

          Bangalow sure as hell recovered fast. Swathe of AIrBNBs when this got cracking came to market at eye watering prices for sale or rent, now numbers way down and sale prices pre covid. Nuts.

          • Yeah, the ‘reality shock’ seems a long way off judging by the bounce back in the local market up here in the Northern Rivers. Good joints go lighting quick, the pus stays put waiting patiently for a FOMO desperado or someone who needs to make the move. So many property sales up here in the last 3 years. A lot of buyers would be at 8-12 x their annual income. They lose their jobs, then she’s all over, red rover.

          • Where roughly are you Spunky?

            Lot of healthcare workers with secure jobs. Lot of people seem to have independent wealth. Lot of people have money from who knows where – BB, etc.

            Prices in Kingscliff nuts, East Ballina, Bangalow, Gbah, Rural acreage Alstonville surrounds are all nuts.

            How many would be 8-9 LTI? I don’t want to go above 4!

            We’re renting with cash and pre-approved, waiting to pounce on a particular area so willing to pay slightly overs as long time proposition for us as OO/P&I family home.

            Some places on ~5ac coming to market near us at ridiculous (to me) prices….either the agents are confident (and I’m wrong on buyers) or vendors stubborn.

            The agent who sold our place has a listing the vendor wants to do off market in the town we want and the price range is about 5-10% too high but they’ll get it I think. Needs new kitchen, paint, carpet, carport.

          • Swampy, 2478 bog in, don’t wait 😉

            Copy on the secure health and aged care sectors. Also on the general wealth from various sources.

            A lot of green field developments – Epiq, Aureus etc etc have been very attractive to a lot of buyers who would be in a LTI ratio of anywhere from 6-10. A lot of punters have been buying at the top of the market /-10% over the last 3 years. Seems to be reaching new highs now for that matter. LTIs are only going higher as a result. No postcode can escape the curse of high unemployment and tightening credit if it does eventuate. My gut feel it is Coming!

            Oh and good luck with the acreage search!

          • Swampy
            Banks can use comparable sales from 6 months ago (jan feb ok)
            I’ve always seen it’s ok in a falling market but in an rising market that’s jumped 10% say over Xmas approvals are based of valuations say sept oct the year before at lower prices
            Ask the guy at Nab the dates of the comparable sales they are using

          • Seen some massive drops in Murbah, Nimbin, and nearer the GC the bigger panic setting in.
            Northen rivers is toast. It just doesn’t know it yet.

          • Good insight BC.

            Spunk – copy that on Epiq. Madness. That Sharpes development at Skennars will be similar – 1M for house and land? We’re coming off 10ac in 2477 – looking to go down to 1/2ac-ish.

            Bunyip – we have an offer in on something on 1/2 acre south of Bangalow. It is very generous offer I think.

            Yet to see any toastiness in prices yet. Explain to me how 1ac on a community title outside Clunes is worth 1M. Or an old homestead on 5ac down a donkey track from Clunes is >1M.

            The thing is, they’re still getting those prices. Buyers ex Mel, Syd, bris with $$$ who can work remotely or have cash.

          • Rose road Nimbin was asking $1.4mill now in the $800ks. Mt warning asking $1.2mil now in the $900s. Plenty others out there were dicounting around 100k now 300k plus. Trust me there is panic in the disco.

      • Yeah – Ivanhoe area of Melbourne during the downturn there was probably 20 projects that got shelved in 2018-2019.

        They are almost all back up and running – but these are generally 3-10 title developments.

        The big ones like Yarra Bend are completely cactus. They are building but are in massive trouble. Keep seeing crazy offers as developers try and escape.

        This one on a massive 1.5 hectares in the middle of Ivanhoe seems to have just been abandoned.

        https://thegroundsivanhoeeast.com.au/

        • Arthur Schopenhauer

          ‘The Grounds’ is particularly interesting. The land was accumulated by the former head of VCAT, while he led VCAT. An entire block of houses in a high value suburb.
          (VCAT is the Victorian planning court.)

          AFAIK, it was sold to OS interests.

          Make of that what you will.

    • Lol

      Divya, there will never be a construction jobs loss in straya.

      The government will guarantee that. It’ll allow every single other sector and job to burn before construction. You can be assured of that. Both LNP and Layba.

      • Geez change the broken record Les. Can you introduce some evidence or argument to your posts beyond endlessly restating your hopeful belief that “the gummint will save us”.

  5. The Penske FileMEMBER

    I commented earlier in the week about the non bank and private lenders moving on clients. Yesterday I came across an example where the owner occupied house has a first mortgage with NAB that is currently up to date however the private loan on another security backed by a 2nd on the home came due on the first of June….. the mortgagee auction is listed on RE.com for the 22nd August. The numbers I have will see a shortfall and the home will be auctioned (not settled) before Christmas. Private lenders won’t stuff around and luckily for Nab in this case they’ll get all the funds back and won’t look bad as they aren’t selling the victim up. I can’t see there not being a contagion issue for the banks moving forward.

        • SoCalSurfCreeperMEMBER

          How common is it that people finance the deposit on a second home by borrowing against the first, and then also having a mortgage on the second? If common,this is the kind of situation that will lead to cascading defaults and much higher loss severity. Was / is this common?

          • DocX, I know people, 3 who used their CC to pay for the stamp study, the full amount too. Actually, I know 4, one of those mentioned 3 are a couple, both had to use their respective CCs to cover stamp duty. What surprised me about this, was the bank was OK with this. Then I was jolted when the couple leased (all else thought they bought), an Audi.

            If you were to meet these people, your first impression may be, crikey! You’re doing very well.

        • Wait, so this person has an OO home, mortgage with NAB, not in arrears.
          They’ve then got a second mortgage with a private lender for a second (we think holiday) home, backed by a guarantee on the first?? How common is that? So they didn’t have a deposit for second? Or used the guarantee to avoid LMI/get under LVR limit.

          How does that play out if private lender forecloses on holiday? Sell that and any shortfall has to be made up by sale of OO or cash? Or they both have to be sold?

          That to me seems like an unecessary and complicated financial arrangement.

          • The Penske FileMEMBER

            Your comment looks as if you’re thinking of this as a consumer product. The first/second was taken out for commercial reasons with prepaid interest and the term expired without repayment. This happens often.

          • That’s because my financial matters are very simple and so that’s my framework for reference.

    • Well, dang.

      A mortgage sale during the worst pandemic in living memory and 20% unemployment and first mortgagee comes out whole.

      Yer don’t say?!

      • The Penske FileMEMBER

        Sorry it wasn’t clear enough. One first will most likely get out. The other won’t.
        There’s plenty more brewing.

      • They’re not whole…they lost their holiday home. Now they’ll be at the RACV resort with all the other unwashed.

          • I tell ya that brings back so many memories…. sitting an the crapper when some old boomer shuffles in to next stall, telegraphs intent with the obligatory cough…..and releases the the hounds of hell…SCHWAARRRTT FLUMP FLUMP CRACKLE SQUEEEEEEK.

            I need to floss just thinking about it.

    • In the same way, ‘other debts’ outstanding that are big enough to have bankruptcy begin it could be a caravan a boat or margin lending. It won’t matter it will result in everything being liquidated to pay the relatively small amount, say 2 cars balloon payment 50K

  6. reusachtigeMEMBER

    We are a free nation so it’s time we cut this socialist support and used that money to directly assist asset holders like property investors!

    • Yeah, and when this free enterprise government stops panicking and thinks about running a real economy, they should think about the socialist philosophies that they direct towards real estate invesment, starting with negative gearing and preferential rates of capital gains tax. We investors want small governement. Government should stay out of our investment decisions. Bloody socialists!

  7. GeordieMEMBER

    “The roof, the roof, the roof is on fire.
    The roof, the roof, the roof is on fire.
    The roof, the roof, the roof is on fire.
    We don’t need no water let the mother burn.
    Burn mother burn.”

    – The Bloodhound Gang

    • That won’t help the housing bears. Life insurance will pay out the mortgage and the houses will not come to market.

        • Generally after 12 months yes. Suicide within the first year of holding the policy is usually a ‘pre existing condition’, so no payout. Check your policy details.

    • Can't Socially Distance

      It’s only money. They shouldn’t have borrowed so much if a recession was going to make them suicidal.

  8. I am honestly worried now. Those that cannot afford a mortgage at current rates, especially if they bought 10 years ago, haven’t a hope to find a rental which might be up to double what they’re paying.

    • We bought in 2011 (FHB) and sold in 2020. Renting. Rent is more expensive than mortgage and by a margin. Fortunately, we can still borrow. I’d hate not to have a stable job, the rental market is exy.

    • Super interesting

      Here’s a free link
      https://taylorfry.com.au/articles/where-are-the-businesses-most-reliant-on-jobkeeper/

      Byron LGA – 60%!!!!
      Ballina 39.56
      Lismore 35.5
      Tweed 47.79
      Kyogle 21 (hmm, because high agri?)
      Richmond Valley 27

      My question would be of those employees how many are casual vs ft, and how many are likely to own homes vs rent vs FHB
      Still lots of money sloshing around not reliant on JK….but would it be fair to say the dominant determinant would be bank lending setting the price, not the independently wealthy or those with secure jobs buying places in Byron, Bruns, Mullum, Suffolk, East Ballina etc. The market is the market….

      • Good one Swampy.

        Plenty will be safe with a large correction. Like I was saying above, its those who have bought in the last 3-4 years who have paid top dollar and were stretching themselves pre-COVID. They are the cohort I fear for. They lose one or both their incomes then they are selling up for sure.