Banks brace for 2021 mortgage default tsunami

ANZ CEO Shayne Elliott believes Australia’s banks won’t feel the full impact of the COVID-19 recession until loan repayment holidays and emergency income support expires next year:

ANZ has provided deferrals to property loans to the value of $31 billion, or about 10 per cent of its home loan book…

[But] Elliott says the bank’s customer check-ins show it is only between 10 per cent and 20 per cent who feel they are in serious financial trouble…

“The total numbers are in the thousands of customers who are going to be in a struggling position”…

Elliott says GDP is likely to bottom out towards the end of this calendar year. But it will take another six months for that to flow through to the banks.

“We think that’s more like the middle of next year, when the crisis will start to hit the banks, if you will.”

It’s an important point.

Like the broader economy, the banks are sitting in purgatory at the moment. Not only are the huge levels of government stimulus shielding the big four, but loan deferrals make it difficult to tell whether bad debts come in a wave or a trickle…

ANZ’s mortgage book is the smallest of the Big Four banks, according to APRA:

  • ANZ $252 billion:
  • NAB $262 billion
  • WBC $407 billion
  • CBA $454 billion

Thus, if ANZ has “thousands” of mortgage holders in severe mortgage stress, it is likely there are tens of thousands mortgage holders across Australia in a similarly precarious position.

As we keep saying, it is the investor segment that we should be most concerned about. According to Digital Finance Analytics’ latest mortgage stress data, released last week, one quarter of property investors (around half with mortgages) are experiencing negative cash flow on their property and under severe stress:

So, with rents now plummeting alongside falling dwelling values, many loss-making landlords will have a strong incentive to sell before the situation gets even worse.

While most are unlikely to default on their mortgages, the selling pressure could put heavy downward pressure on property values.

Australia’s banks have ridden a 30-year wave of rising mortgage debt and property values. Now the wave has crashed and the tide is pulling back.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. The problem is exacerbated by our tax system which encourages investors to remain highly leveraged rather than becoming positively geared. So you get the situation whereby the investor adds to their “portfolio” as soon as they build some positive equity. You’d think it would be a straightforward decision to sell a property to reduce risk but this would be opposite to the buy and hold mantra that underpins the typical approach of the Oz property investor.

  2. So we concede that the govt intervention is holding the Aust housing market relatively stable RE: prices despite dire economic conditions.

    I noted the Japanese example at the start of all this, where essentially insolvent SME business we’re simply allowed to zombify by their bank over the long term at the govts request. You could also note the many American homeowners allowed to stay in their homes post gfc despite not being able to make payments.

    Why can this not be the new normal in a fiat system? If the US has got Australia’s back, printing and supporting however might be necessary – as the world’s ongoing reserve currency. The debts never clear. You are kept on the debt hook forever. Tell me why we can’t keep suspending reality?

    • It has and will continue to happen exactly as you suggest, however Zimbabwe and Venezuelan experience is of currency exchange collapse resulting in consequental inflation. But yeah go for it

    • Erodes trust in the fiat over the long term, debasement of currency does not workforever, as romans found out. I think though it’s a question of “forever” it could well last another generation or two.

  3. Well the landlords have NG to help keep them afloat dont they.
    I expect we will see the ATO be given instructions to go easy on them with unwarranted or illegal deductions.
    Go ahead and put that new swimming pool in your empty fake rental home that has never had a tenant despite claiming NG concessions for the last 10 years.

    Am curious as to what the banks are going to do.
    Will they look after themselves and look to get landlords to divest properties that are under water asap or will they all get together and collude like they do with interest rates and prices to limit divestment to try and keep property prices higher.
    My money is on the later.

    • Keep prices high..
      For how long? Forever?
      The end of the day, if the IR isnt being paid it is a non performing loan. How long the laws can be suspended without the investors taking notice that thesehome loans are actually high risk is a dangerous game.

      • Reckon that’s what the Guv had in mind when they suspended the ‘trading while insolvent’ laws-an astonishing development in its own right. It wasn’t to ‘help’ the little people but to ensure the leviathans of the Strayan economy would be protected. Tumbling resi house prices will smite the lending ponzi and they knew they had no answer.

    • happy valleyMEMBER

      My money is on the banks further depositors to keep the music playing as long as possible and then APRA and the government bailing in depositors when it all gets too hard. Borrowers will be saved because they are special and they had a go and they got a go, and SFM will also do something special to save his excess franking credit “refund” zero taxpayer voters.

  4. There is just a presumption that Australia will engage in either MMT – or – that massive debts no longer matter.

    These things are simply not true – we will NOT engage in MMT as it would break the global system – and massive systemic debts matter.

    Job Keeper will end, mortgage holidays will end – rental evictions have ended. Blood will flow.

    • Now here you go – being sensible with the rules that you were brought up with.
      All you write WAS true, up until 2008, when we had our Final Warning and chose to ignore it.
      What we have now is no alternative to MMT and Debt in perpetuity, all because we thought we could manage the GFC at no cost to those that matter (ie: not you and me).
      We couldn’t; we didn’t and that’s all gone now. The New Normal will be anything but.

        • rob barrattMEMBER

          Invest in the printing industry – the stuff needed for plastic paper currency.
          Yes, I can hear those presses warming up now. All to the stiring sound of that famous drinking song from the old film “The Student Prince” – except, substitute “print” for “drink”.
          She’ll be right.

      • Arthur Schopenhauer

        It’s really whether the MMT is fed in from the top (banks) or the bottom (the mortgagees) via a UBI type mechanism.

        • Commentators on UBI are a little naive. Mashing a keyboard with a gnarled claw to create money is an exorbitant privilege and the ultimate competitive advantage vis-a-vis the proles. Think about the historic precedent of the Catholic Church creating indulgences. Did we honestly think they would give a free income? No, you will have more debt. You may have grace from the occasional repayment but the sword will keep hanging over you. It is UED not UBI; Universal exorbitant Debt. The same system as now and the logical endgame to the status quo.

  5. A UBI will bail out the mortgage holders and the banks

    And support further rising house prices

    Since most of the money will simply be diverted into making interest payments, and thence into the pockets of the rich, it won’t even be that inflationary

    • The problem with simple and easy plans to fix highly complex problem is that the plans never work as intended. Never

    • If it were that easy then why the panic over getting the borders re-opened and the student trade going again?

      Yes, support will be endless, but the effect will to control the trajectory of price falls, maybe even stabilise them, at least in some markets.

  6. ” customer check-ins show it is “ONLY” between 10 per cent and 20 per cent who feel they are in serious financial trouble…”

    Let’s see now, “ONLY” 10 to 20% of…

    ANZ $252 billion:
    NAB $262 billion
    WBC $407 billion
    CBA $454 billion

    equals roughly between (ONLY!) 137 and 275 B I L L I O N ! ! ! !

    That means the equivalent of up to 275,000 million dollar mortgages IN TROUBLE! Unless my maths is off.

    Yeah, no sweat.

      • darklydrawlMEMBER

        It’s the word “feel” that makes me the most nervous. I have met plenty of people who ‘felt’ their financial situation was ‘ok and managable’ despite it being bleedingly obvious that they were already on a collision course with bankruptcy.

        • Agree with you there, I’m starting to see it too. Guy at work who makes more than me tells me his wife (who works in car finance) and gets more than him is about to lose job. I’ve noticed how confident so many well-paid (and well in debt) people have been. The guy mentioned is just waking up, I wonder how many are afraid to get the calculator out.

    • I think your numbers are off. Shane is saying above 10-20% of the $32B which is deferred are in serious trouble, thus $3.2-6.4B of potential bad debts.

      • @ Gareth

        Thanks for the correction, I can see that now.

        Remember though that’s only ANZ, not the others (with bigger books than ANZ).

        So not as catastrophic as I thought but put all banks together and these are still some ugly numbers.

        “ONLY” up to about 27,000 million dollar mortgages, that’s the ones willing to fess up anyway.

        • @Ivan – Agree on the fair weather reporting by the banks. The scary component I see is the non troubled mortgages going into negative equity on a big downturn UK, US, Ireland and Spain style. When the good mortgages turn bad is when irreparable damage occurs.

  7. So based on the Property Investor Stress table above,NSW is going to be be epicentre of the crash.But I have been hearing reports that Victoria is going to lead the crash due to more severe economic contraction from the second wave of Covid. Looks like the data in the table is lagging by a significant couple of months?

  8. Poochie the Rockin DogMEMBER

    I can’t see the government letting the property market crash, they will get immigration going, 50 year mortgages, ability to withdraw any super at any time for a deposit/mortgage payments, and they can always run a housekeeper program where money is given directly to the bank to pay off someone’s mortgage. That is more likely than a housing market crash. I don’t know if I’m lucky or unlucky – on one hand I don’t have to pay rent due to grandparents/parents investing in property but on the other hand I’ll never be able to afford buying a decent place because I’m not going to take on a $600,000 loan because to me that feels like a massive trap (even though I’m fairly sure the gov will artificially keep prices high)

    • What is your premise based on?The figures above indicate the big 4 have mortgage of 1.4 trillion on their books.We already have 25% of them in stress with so many supports in place and it is only a matter of time before it goes to 50% or 60%.In order not to let the market crash the government will need to throw in around 800 billion and pray tell me where is it going to come from?

      • rob barrattMEMBER

        Print money.
        Over the last 30 years the concept of our economic wealth has gone from “producing” something to making a painless capital gain from something – houses. Our rich elite (take a bow High-rise Harry) have dictated the overpowering immigration strategy to keep one last industry (apart from milk powder and diminishing dirt) going – building. With the Covid bust and the inevitable rise of the service-only economy we await the inevitable. Our politicians don’t (can’t) have a solution, only a policy – stay on the gravy train – stay elected, whatever it takes.
        Election = house prices. The only way to keep house prices “higher” is to print. Then, like some magician they will have shown the audience that, despite their increasingly low standard of living, their vaguely perceived barometer of wealth: property prices – consistently increased…

      • Poochie the Rockin DogMEMBER this but scale up to the amount required. Gov has tremendous power to do whatever they want with the economy. People say you’ll collapse the economy with the inflation but that’s not guaranteed – there’s always other levers to pull – I think previous fiat collapses were due to constrained supply of goods whereas nowadays in our service based economy our goods are people so this strategy doesn’t work without immigration – which is why we are going to see the accelerator on that

      • This to a T!
        There’s no question what has happened over the last 25 years wrt the greedy, debt based financialization of houses in Australia. We left the door open to the shop and the vault door open too; no surprise that the thieves would seize their opportunity.
        And because many benefited (some) and the pollies found the easiest way imaginable to stay in office while their pals in FIRE made zillions, they aimed the leaf blower on the campfire.
        Now, we’re out of fuel to burn and despite the full throttle lock engaged, the tiny flame is soon to disappear for good.
        Are not the engineers always surprised when the rivets pop and the poorly designed structure succumbs to gravity and tumbles into wreckage?

      • Jumping jack flash

        “In order not to let the market crash the government will need to throw in around 800 billion and pray tell me where is it going to come from?”

        Chicken feed.
        There’s so many places to find that money. They could just borrow it outright, or create it with QE, or print it as said above, etc, etc.

        To keep it in perspective there’s 1.8 trillion in outstanding mortgages owned by the people. Every dollar of this debt requires interest to be paid on it. The assets attached to this debt do nothing to generate income to use to repay that debt or its interest, except through the continued growth of debt and the inflation of the asset prices as a result of the new debt’s attachment.

        Government debt was just 0.5 trillion before COVID. A tad unfair if you ask me. The government are clearly using their people to take on enormous piles of debt to fund their flawed economy. The government could double or triple their debt in my opinion, and their people would STILL be holding more debt than them to keep this abominable economy functioning.

        800 billion would be the minimum amount that would be required just to get things back to normal. If they want the economy to grow, they will need more. If they want to counter the effect of COVID, they will need more.

  9. $31B deferred.
    For ANZ only.

    Based on very crude 1 minute calcs.

    $310B loan book for ANZ.

    Multiply by four to extend for the other big banks. This is a very conservative minimum and doesn’t include all the other lenders.

    $1.24 trillion.

    Divide by 10 million households.

    $124k average debt per household (mortgage only and very conservative).

    Australia must be the world leader in going forth into new frontiers and innovations in relation to personal debt. This is why we have not experienced a house price crash.

    Incomes don’t really need to rise (although they have). Rates (mortgage) just need to keep going lower – which we have about a decade left of.

    • And Janet and all the other boomers here can do mental backflips and say, “but, all this debt must be repaid! And all this deficit must be repaid someday!”.

      Well, nah. That’s not how the economy or sovereign nations with their own currency and valuable resources work in reality.

      They will never understand because they only know of the textbook teachings and it’s very difficult to learn new economic or scientific concepts past the age of 50 or 60.

      • Jumping jack flash

        The principal isn’t the problem. The problem is the interest.

        1.8 trillion dollars of outstanding nonproductive mortgage debt requires interest to be paid.

        We can go lower and lower with the cash rate to try and goad the banks’ mortgage interest rates down, like we have for the past 20 years, until we hit zero and spook the RBA.

        And that’s the current pickle we’re in. I have no doubt that we will go to NIRP soon, but the RBA will need to get used to the idea first.

        And then after we go NIRP will that be enough for the banks to cut their mortgage interest rates? Maybe.
        But the trillion dollar question is, will that cause the debt to grow adequately fast enough again? I suppose we will see.

        • darklydrawlMEMBER

          “The principal isn’t the problem. The problem is the interest”. Exactly. Although I would argue that the interest payable has a direct relationship to the principal borrowed. Either way you can discount all those folk who go on about the (somewhat brief) time interest rates hit circa 17%. 17% on 100K is a much nicer deal than 7% on $900K. If interest rates rise to 5% then lots of folks are going to struggle due to the huge leverage.

          • Jumping jack flash


            interest rates never rising again, ever. Only NIRP from now on, and then how far down can you go? Infinity.

            Mortgage rates for you and me can never be zero, but they can get to 0.00000001%, and lower, which will be required in a hundred years or so when we have a few thousand trillion debt dollars sloshing around the place.

            Its no issue though, because the days of repaying debt using your own money are long in the past. These days in the New Economy you use someone else’s debt to repay your debt. Simply roll your debt over to the next patsy in the line who is magically eligible for the correctly sized mountain of debt that can repay all your remaining debt, the interest, and still have some left over for the expected amount of capital gains to put into your pocket.

            No risk.