The Specufeckoning: 36% of investor mortgages in deferral

Via APRA:

Many authorised deposit-taking institutions (ADIs) have granted temporary relief to borrowers impacted by COVID-19, allowing them to defer loan repayments for a period of time. To provide greater transparency of loan repayment deferrals at the industry level, APRA is publishing the aggregated data obtained from all ADIs in Australia, excluding foreign branches.

*the number of facilities does not necessarily indicate the number of borrowers as individual facilities with more than one repayment type may be reported more than once.
**to give an indicator of potential elevated risk in loans subject to deferral this chart compares loans subject to deferral to total loans across three key cohorts – loan to value ratio of greater than 90 per cent, investor loans and interest only loans.

An accessible version of the dashboard, with data labels, is available here.

Additional commentary

Deferred loans Total loans Deferred loans, share of total loans
Total $274 billion $2.7 trillion 10%
Housing $195 billion $1.8 trillion 11%
Small business $55 billion $321 billion 17%

As at 30 June, data submitted by all ADIs indicates that $274 billion worth of loans have been granted temporary repayment deferrals, which is close to 10 per cent of total loans outstanding. Housing loans make up the majority of total loans granted repayment deferrals, although small business loans have a higher incidence of repayment deferral with 17 per cent of small business loans subject to repayment deferral, compared with 11 per cent of housing loans.

Overall the composition of loan repayment deferrals remains relatively stable with the most noticeable change being increased loans exiting from repayment deferral, from $2 billion in May to $18 billion in June. The majority of these loans have returned to a performing status. The housing risk profile shows that housing loans granted repayment deferrals are more likely to be extended to owner-occupier borrowers, subject to principal and interest repayments, and have higher loan to value ratios than all housing loans.

The temporary repayment deferral programs were implemented within tight timeframes and the data has been submitted to APRA on a best endeavours basis. As ADIs improve their ability to capture these data items, resubmissions are expected. APRA will continue to publish this aggregate information on a monthly basis until loans subject to repayment deferrals are no longer a notable component of the ADI industry’s total loan portfolio.

Specufestors in distress keeps climbing, now at 36% of the total. The percentages don’t tally with APRA’s total number of mortgages. There are 2m specufestors in Australia. 1.3m of those are negatively geared suggesting leverage. How do we get 36% of specufestors in deferral but only 450m mortgages as the total for all?

Whatevs! It’s a gigantic number and one can only wonder how long it is before they cut and run as they pay the property a negative carry only to watch capital decline while:

  • immigration is dead;
  • unemployment sky high;
  • rents fall;
  • banks tighten, and
  • supply gushes forth.

Sell!

David Llewellyn-Smith
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Comments

        • UpperWestsideMEMBER

          Weekly rent *1000 has been my pricing metric since the late 80’s
          problem is it stopped working in Australia circa 2000 ( at least for property you would want to own)

          • Mining BoganMEMBER

            I still run that equation past RE agents and random specufestors just to get a reaction.

          • Cameron MurrayMEMBER

            Weekly rent x 1000 is a ~5% gross yield.

            It’s now a good rule of thumb for the cost of loan repayments ($1k/wk on $1m loan) with current low interest rates.

          • Sorry Cameron, can you run that past me?
            Say an 800k purchase, 550k loan?
            30 yr term, 2000pm repayments.
            24 yr, 2400 pm

  1. Ah, the upside of the tax system. Capital gains are taxed at 50% of marginal rates, capital losses are basically a black hole.

    I wonder if we will now see a bunch of specufestor’s argue that their investment properties were on income account.

    • two plus twoMEMBER

      “income account”

      What would that mean in practice Jason? (sorry for the basic question.. not a tax accountant 🙂

      • Income account (also called “revenue account”) is the opposite of capital account. If you hold an asset on income account, gains and losses are taxed like ordinary income (wages, interest) or deductions. If you hold an asset on capital account – gains are taxed as capital gains (100% of the gain is included in your income if you have held the asset for less than 12 months but only 50% of the gain if you’ve held the asset for more than 12 months) whereas capital losses cannot be used to offset your other ordinary income. Instead, capital losses can only be used to offset capital gains in the current year or future years.

        So the normal IP play is claim a net loss running loss against your ordinary income but only be taxed on half you capital gain. That way, you can make a cash loss but an after tax gain. Of course that works fine if there is a capital gain. If there is a capital loss it is very bad because your cash loss will be bigger than your tax loss.

        On the other hand, if you make a gain or a loss on say a bond (which is taxed as an income asset), the gains are included in your ordinary income but you can deduct any losses against your ordinary income.

  2. I can’t reconcile these numbers. It would be very useful if they included OO loans and OO/P&I. And further, OO/P&I by LVR ranges, and of those, which are distressed.

    This stuff by LGA would be SUPER useful.

    So, 36% of total loans are investors (is this IO or P&I or blended? What assumptions or qualifiers apply here?) and of these, 34% are deferred? So 34% of 36% are deferred, the remainder being “other”.

    • Jumping jack flash

      lol, they’ll never release that kind of useful data on purpose because it would expose their dodgy system.

  3. I wonder if some can’t actually afford to sell and realise the loss. And others can see it, know it is coming, but their response to crisis is maladjusted behavior of taking the handouts and hoping that the problem will go away; effectively dissociation. Banks will not be as forgiving when hint turns to nudge turns to push turns to shove, but I fear the rules of engagement will be set by the Govt.

    • Great insight. How is a loss manifested? You carry a loan with the bank against a non existent asset that you have to repay (if so, is this at the prevailing interest rate of your loan? or a personal loan/LOC rate?). Or, you can declare bankruptcy?

      • Like Ordou in Chyna. Banks don’t mark to market but the owners know they are broke.

    • Possibly ……
      Mortgage cost roughly the same as rent monthly. If you can’t pay the mortgage, you probably can’t pay the rent. At the moment banks are more forgiving than landlords.
      Best stay put as long as possible and hope it turns better. Foreclosures can take a while so at least you have a roof over your head. People were still in their foreclosing homes 4 yrs after GFC in the US.
      Renting is whole other ball game and possibly less fun. And yes in the end go bankrupcy
      This will take years to wash through. We are only 6mths into a 4 or 5 year demolition job, and people are waiting for govie to save them. They may just do that for some too !

    • SoMPLSBoyMEMBER

      Right on!
      Many can’t (won’t) contemplate the thought that the equity that collateralized the IP loan (the principal res) could possibly be anything than what it *was* when the smartly dressed lender rep handed over the heavy pen.

      Even after 52,000 in vain searches of analogous properties on RE.COM hoping to find a reason why the vals can’t fall that far, the denial will continue. Had this ‘potential’ been discussed rationally and what it *might* mean ( it wasn’t) the terror being experienced would be greatly reduced. Being honestly surprised at what’s happening now is pretty pathetic.

      The next genuine surprise will be the lender version of the OMCG ‘collector’ who’ll scramble his Harley Road Glide up your front step and into your lounge to declare, despite your sobs and pleading, how things are going to be.

    • Some anecdata…Had dinner with some friends of my partner a while ago. They’re not doing so great due to both of them losing their jobs recently, with the woman gone from exec at a bank to teaching at TAFE.

      They tried to sell their expensive Sydney pile recently due to struggling with the mortgage but failed because they would have been under water if they accepted the highest offer….ie they would’ve still owed on the mortgage post sale. No capital gains there.

      So, they kept the house and are now wondering what to do while hoping that prices will rise.

      I think they’re up sh1t Creek and very likely a microcosm of a much larger problem.

      • Vet much so. They won’t sell until they are forced to and that is the prevalent mentality. HODL!

  4. Why do you think MMT is getting a run in the mainstream media right now?

    UBI will save the property market, and reduce price to income ratios, and push up rents and improve mortgage servicibility

    Why wouldn’t they do it?

    Its as obvious as can be that this is what will happen

      • Given the proclivities of the liberal government , in my opinion the most likely initial manifestations would be in the form of cuts to income tax, and making PPOR mortgages tax deductible
        This will get the “deficits don’t matter” mantra into the hearts of the aspirationals/liberal voters

        Following that shift in the Overton window, would follow handouts for the wretched unemployed/UBI if/when labor ever get back in to power

        • Thanks for the considered response.

          I wonder if there is any coincidence around some Libs pushing for the S2/3 tax cuts to be brought forward? Or is that just ideology.

          We do have Scrotumo clearly saying MMT is not the answer in presser the other day…

          PPOR tax deductibility. Why not? If it’s good enough for IPs. That’s equalising NG by stealth eh?

    • ErmingtonPlumbingMEMBER

      Yes,….this is the ONLY reason MMT is being discussed and presented to the plebs.
      The financialized economy has grown to big in comparison to the real economy where the 99% live and is no longer sustainable.

    • Jumping jack flash

      Agree, if they won’t go for negative interest rates then a UBI is the other equivalent alternative.

      Its pretty much the only thing that they can do if they don’t want to see the whole place burn. Their strategy of cutting interest rates (insufficiently, mind you) every time they needed to boost the amounts of debt people were eligible for at the same financial circumstances all fell over when they eventually reached zero.

    • I dont know. MMT is being parroted by all the wrong people and none of the right people.
      Plus i dony see why the govt will have started limiting the scope of job seeker if UBI is the main goal. Wouldnt it be easier to expand the scope of jobkeeper and change it until it just ends up resembling a UBI?

  5. Spoke to a guy the other day that had daisy chained 3 x investment property ventures set up in 3 different companies to his home via personal guarantees from him and his wife. Wonder how the above charts would represent him- I mean, besides a large brown column in the undies chart…?

  6. Anecdata – new listing in our target area. By negotiation. Spoke to agent just then.
    Agent: “are you interested?”
    Me: “what is the price range – I suspect it will be above our budget”
    Agent: “the vendor doesn’t have a price due to the market. Sales recently around here have been from 780-1M.” [Due to the market? This tells me they have NO IDEA what is happening and are hoping someone offers a way higher price than they expect.]
    Me: [I know this is an outright lie/misrepresentation] “I suppose it depends on what you compare to and how far back” [there are recent sales well below this range]
    Agent: “well no. There is a lot of Sydney money around and people moving.”
    Me: “Hmmmm.”
    Agent: “Anyway we’re waiting for an inspection to determine the price. It’s only been on the market for 90 minutes. Can you come this weekend?”
    me: “No, we have an existing engagement.”
    Agent: “well it’s often better if you have a look.”
    Me: “Sure, I appreciate that.”
    Agent: “What’s your budget.”
    Me: “For the right place – not something I have to spend money on, 800”
    Agent: “if that’s your budget I think you should see.”
    Me; “Sure, but I’m not interested if it’s going to be above my budget, it’s a waste of my time,”
    Agent: “Are you familiar with the area?”
    Me: “Very, we inspected the house opposite end November [4 times]”.
    On it went.
    Ended up telling her to call me if anything else popped up.

    Agent went cold on me, I’ll bet because I wasn’t being drawn in to the BS.

    Man, these people.

    @Bolsty, you’ll know the place.

    • Mining BoganMEMBER

      I try to have those conversations but their sh!tf#ckery lies send me into aggressive mode way too quick. Then I wonder if they avoid me because of potential psychopathic behaviour or it’s just too hard to sell to someone on their toes.

      RE agents are the reason I want this country to burn. Them and specufestors.

      • Yep MiBo it’s easier for them to sit on their fat ar$es and wait for a clueless buyer than it is to deal with someone who is well informed and not gullible, so if you are the latter they don’t want to know you.

    • alwaysanonMEMBER

      Yeah I really hate agents.
      “What is the price guide?”
      “$1.5 – but you know with these guides you generally should add 10% to secure the property” (Even the $1.5 is a stretch vs. recent sales and about 10% too much – so they want 20% more than it’s worth)
      “Umm – so why don’t they say what they actually want?”
      “Because everybody knows that they should add 10%”

      Is this underquoting stuff illegal in NSW?

  7. Anecdata: just had convo with mate who is an agent.

    Says there is a fair bit of money around from parents who are getting nothing from super or see super as risky so are pulling $ out and buying places outright for their kids as a kind of early inheritence or loan…better investment than super.

    I did not even think of that dynamic.

    There’s still a lot of people with a lot of money around.

  8. Well I just got a further 4 month extension on my home loan deferral – no questions asked (other than, “do you want a further deferral?”)