Mortgage lemmings hurtle off fiscal cliff

Alan Kohler has joined the chorus warning that Australia faces a tsunami of mortgage defaults once repayment holidays and emergency income support is unwound from October:

Morgan Stanley commissioned a survey of mortgagors as part of some research on the impact of the coronavirus, and found that 55 per cent of them have received some form of income support.

To repeat: more than half those with a mortgage are getting (mostly) government help!

Only 8 per cent were using the banks’ repayment holiday, while 22 per cent were on JobKeeper, 15 per cent on JobSeeker, 24 per cent had received one or more of the $750 one-off payments and 11 per cent had taken early super.

The real shocker in my view is that 15 per cent of those surveyed with a mortgage are on the dole, now $557.85 per week, so presumably they can afford repayments. It will soon come down to $407.85, until December 31, and then return to the old rate of $282.85 a week in January, or $40.41 per day. Call it what you like — dole, Newstart, JobSeeker — no one getting it services a mortgage.

Meanwhile JobKeeper gets reduced to zero in March, there are no more one-off $750 payments planned, mortgage repayment holidays are due to end in January and two super withdrawals of $10,000 each are it.

To sum up: the survey suggests that 3.3 million people (55 per cent of Australia’s 6 million mortgages) need to find decent jobs within six months or they’ll default.

There’s no doubt that a perfect storm is brewing for Australia’s mortgage slaves as:

  1. JobKeeper is reduced from $1500 to $1200 ($750 part-time) from October;
  2. JobSeeker is reduced from $1100 to $815 in October, and then back to $282.85 from January;
  3. Early access to superannuation is ended from January; and
  4. Mortgage repayment holidays taken up by nearly 500,000 borrowers (comprising 11% of total mortgage) are tapered in October and fully unwound in January.

The big risk is that literally hundreds of thousands of mortgage holders are forced to sell, causing property prices to collapse.

The risk is obviously highest for Australia’s 1.3 million negatively geared investors caught in a pincer between falling property prices and rents.

Losing money on one’s investment is difficult at the best of times. It’s even harder in the face of mass unemployment and falling disposable incomes.

Unconventional Economist
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Comments

  1. How does this risk get ameliorated by banking cabal + government?

    Or better put, are TPTB really going to let this go BANG?

    I’m skeptical they will.

    The data screams don’t buy now, but my gut instinct says the protection racket will be maintained…

    • I’m looking forward to seeing what they come up with next to keep the party going. All the bears will be on here saying “How dare they!” and “The crash is coming in 6 months time, this time!”

      • Super is dead. That’s why they dished out a little taste, to wreck it long term. LNP can’t abide unions being so close to all that coin, they’ve been crawling up the walls about it since the union and banking RCs.

        • two plus twoMEMBER

          If that’s where things are headed, it would be an additional drag on asset values as funds are progressively liquidated? Might help mitigate some pockets of residential, but not much else I would’ve thought…

      • Display NameMEMBER

        It is always 18 months to the crash. Just like house prices double every seven years.

        • bcn told me the bubble was going to burst before June 30. But then the government came up with JobKeeper and mortgage holidays. Now we have to wait another 18 months? I’ve been promised I can buy a house for 50% off so many times but here we all are still waiting!

          • Funny I heard that being uttered in 2018? Or have we forgotten about that? The doomsdayers here think it’s the end of the world and some property is going to be free/worth $0. I still say the government will pull out every trick they can to stop any real crash coming to fruition. Just like they’ve done in the past, they will do it again. Like others suggest intergenerational mortgages, opening up super, long interest only periods… They are all a possibility to keep house prices up.

          • ZevombatMEMBER

            JobKeeper and mortgage holidays are bandaids that start peeling off before xmas. The longer term levers (lowering rates, raising immigration) have snapped off. Loose lending that bankers could get away with while house prices were rising are less likely now they will worry about their own jobs… Govt can provide some cushions but don’t see that they can actually stop the fall once it’s got some momentum – and so long as the LNP have an external factor to blame I’m not sure they’ll even try that hard

          • Lol neg 30% 4 yrs only Mel and Syd finance system is finished digital now machines can do all finance jobs

    • It’s a good point Swampy, an LNP govt is allergic to falling house prices, they’ll come up with some hare-brained idea to kick the can down the road for another couple of years

    • Swampster, the monetary firehoses will be deployed, but it will not be enough – it will simply ameliorate the impact.

      The real danger right now is that both gubmint and RBA have indicated that they’ve done their bit (I suspect that’s a coordinated ploy to mentally prepare everyone) but they actually don’t realise (at this point) how bad things are – or will get. When it becomes apparent that all is not well and that unemployment is headed to 20% and north thereof, that’s when they’ll spring into action again but much of the damage will have been done by then.

      They have printed money — and nothing else. The debt (private sector in particular, but also public, that is the problem).

    • Yup. Maybe people will have to sign something saying they really, truly plan to sell the house some time in a virus-free future.

    • 2.09 2 year fixed with l0ans d0t c0m d0t au.
      or 1.99 intr0 1 y3ar variabl3 r3verting to 2 five nine.

      we got AIP on this. Can cut loan term by 5 years by keeping repayments where we had them on last home just sold.

    • Jumping jack flash

      Banks would love it!
      Think of the debt growth.
      And sucking on all that tasty interest, stringing along the squirming slaves for a bit longer before the inevitable.

  2. A great plan made in earnest:
    – Delay closing the border
    – Shunt quarantine responsibilities to the States to play the blame game as required
    – Shut down the economy and destroy a few million jobs
    – Magic up some government assistance but let only about half the workforce qualify for JobKeeper and voila, find $60B down the back of the couch
    – Allow companies to rort JobKeeper up the wazoo and pocket the dough
    – Plan to bring in foreign students
    – Enable people to access super to tide themselves over
    – Then deny people with liquid savings (garnered by pulling from Super) access to JobSeeker for up to 13 weeks
    – Let the banks deny credit to anyone who pulled said Super out as a “credit risk”
    – Cut JobKeeper access and amount of dosh
    – Cut JobSeeker
    – All Praise Thatcher! Hail Reagan! Isn’t austerity great?
    – Get aggro with China (a good thing if done right)
    – Support Clive Palmer’s High Court challenge against WA, then pull the pin when it finally dawns how stupid you are
    – Have no plan for nation-building other than mass immigration and ever-cheaper labour
    – Refuse to borrow and spend to support employment
    – Suspend parliament and smother transparency
    – Hand out contracts to Liberal mates
    – Watch economy burn
    – Blame Labor, labour, unions, protestors, red tape and anyone but themslves

    • BoomToBustMEMBER

      You missed a point
      -Have the ATO spruik that they are actively chasing those who withdrew Super that should not have to incite fear into the population.

      • Victoria is in for a very rude shock as supply chains collapse – shortages and high price, plus a shed load of permanent unemployment. Time to stock up on adult diapers…

        • Tinned food, water, med supplies, long life milk, batteries, candles, matches and ammo in my AO. Lots and lots and lots of ammo.

          I went for a walk in the local urban green area yesterday. Counted around 60 plump and healthy kangaroos.You can walk up to within a few metres of them they’re so used to human contact. My partner is scared of the damn things, particularly the big males that rear up and glare at you. I look back and think “you’ll be delicious”.

          • Long life milk? Yuk… House cow and a neighbour with a bull is more my taste. As much milk and cheese as I can stand, plus 200kg of beef every year or so…

          • Had to sell our S/G as off the land, but still have license, PTA and ammo. (Sold the 22WMR 🙁 ).
            But, still have all the other stuff from Feb, plus UHF. UHT soy…masks etc.
            Can still get hens up here.

  3. So what to do? Let nature take its course – crash and burn? Or administer taxpayer intensive care – save mortgagees and banks?

    My money is on the latter. We now have united interests demanding Pandemic Leave to prevent Covid positive persons going to work. Pretty sure that once knowingly spreading HIV was a crime of sorts…

    There is now no limit to limiting inconveniences an individual may experience – everyone gets a medal.

  4. Aussies Not Doing The Right Thing

    They’ll just extend the mortgage holidays LOL. You really think they’ll let property prices crash?

    Enough with the JobKeeper and doubled JobSeeker though. I’ll be paying a 2% coronavirus tax for the rest of my life because people were financially irresponsible and put nothing away during the good times.

    • erutangisMEMBER

      The question is though.. it’s the banks providing the holiday. How long can they keep doing so?

      • Jumping jack flash

        as long as the banks get their interest one way or another there really is no limit.

        In the US the banks also foreclosed early on the more struggling ones but held the properties off the market until conditions improved for them to sell. They’re probably still selling them right now. No sale, no revaluation, no change to LVR, no change to risk, and therefore interest rates kept low for everyone else.

        I expect a similar thing to happen here if required.

      • As long as they want, after all they’ve loaned ‘money’ that they’ve created out of thin air and have been getting the debt slaves’ hard earned as a bonus (that’s real freeloading), by postponing repayments they simply aren’t collecting a form of private tax.

    • What is with the Australian people that you think you can escape a crash as if this hasn’t been attempted in so many places before?

    • A 2% coronavirus tax? Lol.

      In times like these a 2% tax will turn into a 100% tax in the blink of an eye.

  5. macaroni jewelerMEMBER

    Refinance with a intergenerational loan period? Can’t see anything else left in the conventional bankers handbook.
    55% of mortgagees is more than the banks can afford and a large slice of the electorate, expect some strange things from the conservatives… debt jubilee, mortgage write offs??

    • Jumping jack flash

      “Refinance with a intergenerational loan period…”
      no need to do that. If they succeed in saving the market, the debt slaves will be able to find a greater fool who is eligible for the correct amount of debt to make things right.

      “debt jubilee, mortgage write offs?”

      Absolutely no debt jubilee.
      Mortgage write offs only after bankruptcy, and I’m guessing most of these poor sods have LMI.

  6. “1. JobKeeper is reduced from $1500 to $1200 ($750 part-time) from October;

    2. JobSeeker is reduced from $1100 to $815 in October, and then back to $282.85 from January;”

    Why would job seeker be less than job keeper?

    • Because it’s a means-tested income support payment for unemployed people. Jobkeeper was a temporary subsidy given to businesses to pass on to employees to prevent the end of the world. Not means-tested. Lots of people will get nothing when JobKeeper ends, because they have a working spouse.

    • JobKeeper is a botch, especially payments to casuals. Plus allows zombie companies and others to profit. That said, I assume the JobSeeker figure above ($282.85) is weekly, double to equate with new JobKeeper figure. Imo Keeper and Seeker should have been the same.

  7. Poochie the Rockin DogMEMBER

    Curious to see what the government will do if housing really does crash? Probably nothing – it lets the rich buy more property at cheap prices from the financially stressed aspirationals. Then once a vaccine is found, the government goes back to turbo charging immigration and house prices go back to their previous highs.

  8. Australia’s main stream media, tied as they are to the property speculation umbilical cord, sound the alarm and warn of calamity every time it seems their revenue is impacted by falling house prices.

    They’re perfectly positioned to do so.

    It’s a racket for the ages

    • Jumping jack flash

      This,
      There’s a fine line between news and propaganda.
      Many of these news stories about falling house prices sound like a desperate plea for the government to do something to avert it rather than measured reporting about a well-needed correction after 2 decades of clear irrational exuberance.

  9. Big 4 currently increasing hardship and collections teams recruiting, along with KYC AML & fraud roles (for anyone looking to bolt OS woth cash before hammer drops? Or ‘savvy’ buyers trying use super to snap up bargins? Dunno), few legal/LMI/repo sounding roles too- all have hard start dates in early september….

  10. “more than half those with a mortgage are getting (mostly) government help!”

    This is not surprising at all when you understand that the Government’s main priority (no exaggeration) is to prop up RE prices.

    The idea is to not allow mortgage payers or rent payers (who pay straight to mortgage payers) have a reduction in income or no income. JK and JS are effective and will be extended until necessary.

    Simplified, the government will pay peoples’ mortgages as long as is required. Read that again slowly so it really sets in. That is the truth. There’s no “out of ammo” or “this is the armageddon, reset, cliff, etc.”

    JS and JK will not end in March 2020 unless the borders are open. In any case, it will be a gradual weaning.. not a cliff.

    Additionally, mortgage rates have plenty of room to move. People don’t seem to get it here that the lower the prevailing rate is, the smaller a move will have a greater effect. (E.g. 0.5% off 2.5% is a 20% reduction in interest repayments and increases borrowing power by 25%. A 0.5% move at 5% would be half that impact for example).

    A plethora of fiscal packages to support RE prices haven’t even been announced yet.

    • bolstroodMEMBER

      I agree, something like you are contemplating.
      If they don’t, the next election will be a blood bath.

    • It’s the end of the road, Les. It amazes me that you have belief in the ability of the same people who put us into the mess in the first place. It’s beyond their control.

    • I have no doubt that unnatural acts will be performed. It’s their effectiveness that is in question.

  11. Goldstandard1MEMBER

    The difference is that the gov is not solely focused on RE prices anymore, they can’t be.
    They have a virus with no vaccine, and a broken economy with too much debt and record unemployment. RE prices are after all that. Therefore, they’ll struggle and fail this time.

    • You can bank on any policy and implementation they come up with will make the situation worse. They’re still in thedenial stage as far as I can tell

    • “too much debt” ?!
      No such thing.
      MMT will solve all of our problems, just like every other currency debasement project in history has before the one we are using now…..It’s all just 1’s and 0’s on a spreadsheet, not Debt!

  12. $195B x 1.5% PA (blended funding costs) x 6 months = $1.47B

    This is the costs being paid by the banks with zero revenue coming in to offset it. It cannot go on forever and if people cannot re-start payments then banks will have to start the foreclosure proceedings.

    Better to do a controlled exit rather than a foreclosure but people are massively emotional and wont always make the right decision until its thrust upon them.

    • Arthur Schopenhauer

      Couldn’t the RBA provide a facility that bought all the non-performing loans and park them in perpetuity?

  13. I could imagine the government bailing out the “gap” between bank funding costs and lack of customer interest payments using printed money on the condition the banks continue to extend a “no repayment” grace period on a rolling 3-6 month basis. i.e. you get a free house for a period with no mortgage obligations.

    As long as the banks get paid there gap and interest revenue, they really dont care what else happens. Bonuses and such….principal never being repaid is fine with them. Means more longer term revenue, the ultimate subscription model that would make Netflix and Spotify green with envy.

  14. I’m almost certain to buy a house in 2021. Need a place to live with my woman, and paid off before I retire.

    I greatly fear that prices will start to plummet the day after I buy. The thought of participating in the great Australian Ponzi makes my guts churn, but what can you do eh?

    • That’s how I feel!

      This “it can’t crash until the last bear capitulates” thing means a proper crash is gunna take fkcken forever!

    • Same. We were supposed to look at a place y’day (off market), currently tenanted, lease ends end Sept. The property management team of the agency who is listing it didn’t send the tenants a letter 2 weeks ago (and no one thought to check, seriously, who hires these people) so another week till we see it. Meanwhile, the situation worsens, and this agent (who sold our house) says “stop reading the stats! The market is fine here!”

      (I am not joking – “don’t read the stats”)

      • I think your agent may be right despite what Martin North says. I’m also waiting to buy, but checking SOLD property over the last two years, there has been a humongous increase in prices down here in that time.

        It’s a juggling act between between waiting and/or for it all to sail past on the ever-upward trajectory price for good land, which is not coming on the market……..frustrating doesnt’ describe it.

  15. I think he might be overstating things a bit. People got the two $750 payments if they were on family tax benefit or the non-means-tested carer allowance. Small additional amounts of money paid to lots of working people, not full-on income support.