400,000 households peer off mortgage cliff

The Australian Prudential Regulatory Authority (APRA) has updated its loan deferral data, which reveals that repayments on $240 billion worth of loans were deferred in July, including $167 billion of mortgages:

In numbers terms, repayments on 414,430 mortgages (7% of housing facilities) were deferred in July, representing 9% Australia’s outstanding mortgage stock.

This is a solid reduction from June when 496,606 mortgages (9% of housing facilities) had been deferred totaling $195 billion worth of mortgages (11% of total stock):

Finally, around half of the deferred mortgages could be considered ‘higher risk’, having either a loan-to-value ratio of more than 90% (9%), being interest-only (14%), or being an investor mortgage (34%) where rents are now falling:

It will be interesting to see what happens once emergency income support is cut from the end of this month, households lose access to early superannuation release (from the end of the year), and the temporary moratorium on bankruptcies expires (at the end of this year).

There remains the clear and present danger of a significant number of forced sales driving property prices lower.

Unconventional Economist
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  1. I’ve noted before that I’ve had record sales during Covid (up 200% March through July) but these went back to pre-Covid levels in August, and September has been the same. The retailers I wholesale to have been quiet as well. My feeling has been that it is the approaching stimulus / mortgage cliff, but I have no proof.

    This morning I had coffee with a few people, one of whom runs a high-end deli in a wealthy part of Brissy, who also experienced record sales during Covid. In the last 2 or 3 weeks his business has dropped off sharply and he’s thinking similar. There are regulars of his who are now spending a third of what they used to in recent months.

    Meanwhile Brisbane property looks hot. Speaking to someone on Saturday who is about to start building a new home down the road from her current one but has decided to sell the one she’s in now (while the market is frothy) as she is expecting a sharp down-turn next year and doesn’t want to be sitting with mortgages on two properties when there is “no bid”. (Her property would be in the $4-5m bracket, for reference). She told me properties were regularly being sold to Victorians site unseen (RE agent ‘intel’ so not sure how accurate but seems about right given Sold signs everywhere, including Units).

      • A friend of mine runs a home cleaning business with his wife. They live with his mum to take care of her but also because they sold their house in Werribee during the Royal Commission when there were no buyers around. Think they got out of it ok, considering it was kind of generic.

        Anyway, they got a cash boost of $20-30k from the Government. I was kind of surprised. He’s been stuck at home with not much to do.

        So it’s just more stimulus money floating around. I wonder how many other businesses are gonna receive similar payouts? Now that Dan Andrews has announced similar stimulus boosts for Victorian business due to stage 4 etc..?

        Just seems this money is finding its way into the classic car market.

        Nobody wants to sell their vintage cars because demand is so hot and prices rising so fast that it’s worth holding vs selling. This particular car had a price tag of $550k, then a similar car in Japan got $500k (more kms) and the seller bumped price up $50k..

        Before COVID-19 there was more R34 GTRs on the market. Cheapest was about $80k. Now this is the only car on the market. Go figure..

        • My god. Take the dollar sign off and that looks like the Yen price… Of course, I’m only going on my memories of Gran Turismo.

          • I know it’s absurd. I recall in year 2000 seeing 1 for the first time (R34 GTR) and thinking wow, cool car but I can’t afford $100k+ they cost. Then in 2013 I thought of selling my Rx7 to buy 1. They were around $60k still back then. Now it’s impossible to find under $100k. Most are over $150k and then there is the few low kms cars asking $300k+

      • You can only get early super relief if you apply for severe hardship. Once you apply for that you are no longer eligible for a loan as it severely effects your credit rating.

        Its not about super – the Job Keeper is not regarded as benefits, there are super, deposit and first home buyer subsidies galore at the moment – so a couple on Job Keeper with no job can buy a million dollar house with no deposit for about $6/700/week and have $800 a week for whatever.

        Its the single biggest housing stimulus package in our history.

        • Early super release has no impact on your credit rating (the creditworthiness number various credit ratings agencies will give you) as agencies have no ability to see the early release. What it does do however is impact the credit assessment your actual lender does.

          As part of your application, your lender has your bank statements for the past 3 or 6 months. They see the super money flow into your account and they ask where it came from. Once you answer truthfully – or they see a superannuation trustee name in the transfer description – they treat that according to however their own internal model tells them to treat it.

          The obvious way around this is to wait 3 to 6 months after the last super withdrawal, before applying for a loan.

    • Im in chandler and everything has sold in my area even the absolute crap that was sitting on the market for the last 12 months.

        • I wouldn’t doubt it is, though why the consistently low auction clearance rates? 40.4% for last week.

          • Nothing sells at auction in this State – must be a cultural thing. And when it does, it’s probably a foreign or Interstate buyer.

          • darklydrawlMEMBER

            Actions seem to be a big thing in Melb and Skidknee. The rest of Oz – less so. More private sales.

          • Thanks Dom and dark – guess the clearance rates might just pick up in the future with all the Melburnians moving up there!

          • What is the denominator for the calculation of clearance rate?
            Surely it is
            # of properties sold at auction/# of properties offered for auction.

            My observations of NNSW auctions is agents do it a lot for rural property where they have no idea of its market value – auction with no price, price added after feedback. Or, they do it in hotspots like Bangalow.

            When we put our farm up they went with the former which another agent said was “sneaky/dodgy” and it seems to happen a LOT.

  2. The Sling Shot Boys

    Worse: The V has exposed huge economic vulnerabilities
    Most of the jobs that are vulnerable to pay cuts, lost hours, and layoffs
    are held by workers earning less than $40,000 a year.
    Many small businesses are about to go bust .
    But they are the source of much employment and employment growth.
    But 90% of companies less than 5 years old, traditionally, go bust.
    The businesses of accommodation, food service, retail are the ones experiencing the greatest economic impacts from the V crisis.
    Add this: the digital divide has been exposed.
    Access to digital infrastructure is now pre-requisite for doing business.
    With all the WFH, will cities continue as productive engines of opportunity?
    This calamity has plenty left to run yet. Reminds us of the 1890’s

  3. What are we going to do about all the people who have now consumed a portion of their superannuation when they come to retire?
    I guess that can has been kicked far enough into the future that no economist will consider it.

    • A relatively well-off mate of mine said to me recently, the best ploy is to get rid of all your assets to your kids (apart from the primary residence) and get on the State pension. Whether that’s practical or not, the sentiment behind the statement is all you need to know. Spend it all now and let the State take care of you later. What’s not to love?

      (I’ll wager right now that the State’s contribution in that regard is going to be significantly reduced in 20yrs time relative to today – anyone relying on the SP in 15-20yrs is going to be taught a tough lesson).

          • No in so many ways. No to the virus dystopia that is the USA. No to the idea that Australia’s economy is anywhere near as dynamic. I think that those countries parted ways a few decades ago.

      • In the graphs (figures) above there is of course no measure for repayment holidays for the Bank of Mum and Dad. Big bucks there too. It all adds to the pressure that slows the beast.

      • >The best ploy is to get rid of all your assets to your kidst
        All that captain gains taxes to pay is not worth it.

        • Yes, it’s funny how people have very differing attitudes to this. Some happy to give it all away and let their kids enjoy and some hell bent on taking it all with them to the grave.

  4. I think the numbers for small business loan deferrals are probably even more interesting than the housing loans. While it is a smaller number in terms of loan amounts, 17% of small business loans are being deferred. That’s almost 1 in 5 small businesses deferring their loans (and remaining deferred at the moment). Many of those small businesses would be employing people, and are presumably at risk of folding. That has flow on effects for the wider economy. I also suspect than many of the small businesses that have deferred loans to the business are owned by people who have also deferred loans on their houses.

    • Yes, particularly in the F&B sector, hard to see the economics working for many with customer numbers reduced at least without some kind of reset in terms of their overheads. These things haven’t even started to come through the system yet.

    • The Penske FileMEMBER

      I take it from this report that it’s APRA’s data therefore non ADI’s and the plethora of smaller unsecured business lenders who target the self employed Low Doc market would not have supplied their figures. I think there’s more pain under the surface that what’s shown here.

      • In the graphs (figures) above there is of course no measure for repayment holidays for the Bank of Mum and Dad. Big bucks there too. It all adds to the pressure that slows the beast.
        (repeated from above)

    • Large proportion of SME loans are secured by residential property. Rarely to banks lend to SMEs unsecured.
      Feedback loop is going to hit residential property as the SMEs are forced to sell to cover creditors on the business front.

      • darklydrawlMEMBER

        Absolutely correct. The general rule of thumb is the bank will only lend SME’s money against a secured asset. In most cases this is real estate – often the PPOR too.

  5. Not hard to think that lots of locked down Victorians will be buying in SE Qld and moving there ASAP.
    They are done with mass immigration, falling standards of living, and Dan. They have seen the future if they stay, and have decided to sell in Vic (hopefully), buy in Qld, and have a higher standard of living. That’s the dream anyway.

      • Friend of mine works for a local University and has been remote since this started. He basically drinks all day at his computer. Has bloated badly. But besides that is renting a semi in Carnegie with is partner.

        For what they pay in rent they could buy a baller house
        (if Bogan excess and style is your thing) in QLD with pool / garage etc . Around $600k. Which is what a starter home in Victoria’s migrant hot spots costs now.

        They have a decent enough deposit to do it too. His missus is over lockdown. Wants to escape to QLD. So be interesting to see if they do it. Or if the virus dies down here and they forget about it?

        I honestly was looking at all sorts of regional areas before I bought in Melbourne. I would have loved Newcastle if it wasn’t for the wife insisting on being close to the olds.

      • darklydrawlMEMBER

        The three families I know who are seriously looking at moving to SEQ from Melbourne will all keep their Melbourne based roles and are permanently working from home. All they need is a decent internet connection and a similar time zone. I suspect there are plenty of other people / families who are in similar situations and are not reliant on getting a ‘local’ job if the move interstate or regional.

      • Correction,,,, brisbane now has Melbourne gangs. There’s no job in Brisbane it’s pretty rascialist and most of locals drink like it’s a sport. If you can a gubbermint job all fine otherwise don’t come.

    • Inside information – government is looking at people being allowed to move and still have work from home. Response initially was yeah seems fine, however now they are considering the impact on the economy.

      Government jobs are part of stimulus – so employing people, who then plow their earnings into another state does not look good.

      Looks like it will be allowed to have extended periods away – but permanent address is local.