Westpac yesterday released its third quarter results, with the company announcing that it would not pay a dividend due to “significant uncertainty” and “increased provisions for bad debts” as “many mortgage and business customers continue to require assistance”.
Included in its disclosures is the below slide showing that 78,000 customers had deferred $30 billion worth of mortgages as at 31 July:
Looking at the breakdown reveals that just over one-third of mortgage deferrers are property investors, with 22% interest-only. Moreover, the overwhelming majority (80%) are less than three months ahead on their repayments:
NSW and VIC, whose property markets have been hardest hit by the COVID-19 downturn, also account for 70% of mortgages deferred.
Finally, Westpac revealed that mortgage delinquencies have risen significantly:
Westpac’s sour prognosis follows NAB’s disclosure last week that 86,000 mortgages have been deferred totalling some $35 billion:
This comprised:
- ~30% of mortgage deferral customers have no redraw / offsets available.
- ~70% of mortgage deferral customers are <3 months ahead on repayments.
- NSW accounts for 40% of mortgage deferrals versus 32% for VIC
- 44% of deferrals are investors
The CBA, by comparison, last week reported 135,000 deferred mortgages, of which 16,200 (12%) are at “higher risk” of defaulting.
As we know, the Australian economy is operating in an artificial bubble of emergency income support (i.e. JobKeeper and the JobSeeker supplement), alongside mortgage repayment holidays.
From October, this emergency income support will be lowered as followed:
- JobKeeper reduced from $1500 to $1200 from October ($750 part-time); and
- JobSeeker reduced from $1100 to $815 from October.
The Grattan Institute estimates that this tapering will reduce income support from $18 billion a month (10.7% of monthly GDP) to $3 billion a month (1.9% of GDP) for the six months beyond:
Thus, struggling mortgage borrowers will come under increasing financial pressure, potentially leading to a tsunami of mortgage delinquencies and/or forced sales.
The risk is obviously greatest for the large pool of negatively geared landlords in Sydney and Melbourne suffering both falling prices and rents.
So, after being the prime beneficiaries of Australia’s 30-year long mortgage credit boom, Australia’s banks are about to cop it in the neck as it unwinds abruptly.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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What about LMI? CBA said last week >95% of mortgages over 80% lvr have LMI. Assume WBC similar. So forced sales yes but maybe banks are ok?
Good question.
Someone posted on here yesterday that two of the big banks do their own LMI in-house. So they are still on the hook for it.
The others use genworth which doesn’t have enough capital set aside to pay out everyone… eek!
Let me fix that for you:
The others use genworth which doesn’t have enough capital set aside to pay out ANYONE… eek!
QBE is also used. Not sure how up to date this is:
https://www.finder.com.au/lmi-providers
Your insurance is only as strong as your insurer.
If the banks were ok their share prices would be going up.
No-one likes a bludger. Time for borrowers to stop bludging on banks and depositers.
When will they model this can kick and inform the market?https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-184mr-asic-publishes-expectations-of-retail-lenders-when-loan-repayment-deferrals-end/
NEW ZEALAND …
… Easy money and bad business go hand in hand … why be surprised ? …
… as the Irish too learned the hard way in 2007 …
‘Staggering’ number of households behind on their mortgages … Rob Stock … Stuff NZ
https://www.stuff.co.nz/business/money/122480540/staggering-number-of-households-behind-on-their-mortgages
Thousands of households have missed payments on their mortgages, but haven’t yet been brought into the home loan “holiday” scheme.
To help households cope with the economic impacts of Covid-19, the Reserve Bank and the big retail banks agreed on a mortgage deferral scheme to allow struggling households to make lower payments on their home loans, or postpone making payments at all.
Borrowers making repayments on around 83,500 home loans have now used the mortgage deferral scheme. It has been extended and will now run until March 31, Finance Minister Grant Robertson confirmed on Monday. … read more via hyperlink above …
Why did the Central Bank of Ireland cap mortgages at 3.5 times annual household incomes following their 2007 event ? …
Mortgage Measures – Central Bank of Ireland
https://www.centralbank.ie/financial-system/financial-stability/macro-prudential-policy/mortgage-measures#:~:text=The mortgage measures are aimed,-income (LTI) limits.
All Editions – Annual Demographia International Housing Affordability Survey
http://www.demographia.com/db-dhi-index.htm
What have Australia and New Zealand learned ?
But Australia is different, SFM said so.
Debt-based money systems, Hugh.
Fake money corrupts. Always. And the little guy gets shafted.
Let’s just look at employment prospects
Forget the fact we are in the worst depression ever, way worse than 30s
On top understand the structural shift to cloud & online (just look at NASDAQ), AI, Robotics over next several years
Unemployment will 30 to 40% and growing…..
You can’t stop nature, you can delay that’s it
Honestly I don’t even read the articles now, I just read comments, I’m sorry these banks won’t be around as they are now in 12 months
I’d say there will be a trigger an external shock that pushes them over but even if I’m wrong on that, banking along with property is now in a multi year decline
The decline of the old world
Banks won’t be around in 5 years it’ll be private lending peer to peer or some new model the smart ones will come up with
Yes I can see what you are saying now
Everything commercial will become IT’d productivity skyrocket and structural unemployment does too
Hopefully it will be a combination of
1. A democratic central bank balance sheet..E.g. MyRBA
2. Plenty of private monetary systems to keep the public ones on their toes
3. Plenty of non bank lenders including things like P2P
But getting there will be traumatic as the banks will fight every step of the way.
Phf
I’m sure all the smart people will come up with some combo but what we currently have is finished
Let’s hope so!
Just realised that Aussie banking exec probably learnt risk management at Australian universities….. base your business on one client type and expect help when things fall over
Funny. Pity it’s true though
Comment of the day!
Dodgy foreign students and resi mortgages. What a pair!!
30 and 90 day delinquencies were up 51% and 69% respectively, yet amazingly repossessions decreased 37%.
Following that….the amount of reported repossessions is 36% of what it should be, by the numbers.
Methinks some companies are holding out on sharing the full truth, and the smoothing continues until the next quarter.
I think they are just “extending” – those numbers are tiny anyway like 349 properties in total. Just PR whilst the ‘Rona is in full swing. They will start taking possession eventually.