The mortgage repayment cliff “will be devastating”

Economist Jason Murphy believes that the mortgage repayment cliff will hurt the housing market and economy in one of two ways:

  1. It will drain the economy of household disposable income; and
  2. It could lead to a significant number of forced sales, driving property prices lower.


In the next few weeks 450,000 Aussies will be getting a call asking them for money they may not have. The knock on effect will be devastating…

Six months ago banks handed out loan deferrals like lollies. Now they’re coming to take the deferrals away…

The boss of the Australian banking association calls it the “largest ever customer contact process in the industry’s history.”

Hundreds of thousands of mortgage customers and around 100,000 small business loans are up for reassessment, and banks will be keen to get people paying again…

The missed payments need to be made up, and the extra interest is added on top…

Westpac CEO Peter King confirmed on Friday that some customers are now in strife…

As the tidal wave of loan deferral phone calls happens around Australia, the after effects will spill out and affect the rest of us. This will happen in two ways…

In the best case scenario, people who were worried they were going to lose their job actually didn’t. They simply start repaying their loan. That’s great news for the banks but it is not always best for other businesses… If this effect is large it could hurt sectors of the economy that depend on consumer spending…

The hardest conversations banks will have with deferred customers are ones where they can’t start to repay again.

Houses will get sold… The impact of any forced sales will be felt in the housing market. If a lot of people are forced to sell their properties at once, there could be a rush of supply.

According to AlphaBeta, the gain to household disposable income from mortgage repayment holidays is only small at around $3 billion. Thus, recommencing repayments won’t have too much of an impact on household disposable income in isolation:

The bigger concern is that the mortgage repayment ‘cliff’ is scheduled to coincide with the unwinding of other ‘cliffs’, namely reductions in JobKeeper and the JobSeeker supplement, as well as the expiry of early access to super.

As shown above, the unwinding of all of these emergency measures in concert will clobber household disposable income, resulting in even lower consumption spending and reducing the ability of Aussies to repay their debts.

Unconventional Economist
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      • Let us pull out all our super, then give us a 2 year 0% super contribution period. This will lead to an employment boom.
        Then legalise voluntary euthanasia for anyone over 80, which will reduce our need for Super anyway.

    • The states haven’t given him a choice. Extending JobSeeker/Keeper will allow the borders closures to be extended.

  1. What is everybody worried about?

    A monetary system constructed around the IOUs created out of thin air by private banks is simply the best system ever.

    Only a “money crank” could possibly think otherwise.

    The solution is obvious – just have the public central bank pay full price, for those tasty private bank IOUs or the asset prices inflated with them, with rock solid central bank liabilities.

    Oh sure – make up some complicated confected jargon (with a pithy acronym) to conceal what you are doing but who is going to argue about having the public bailout a private system of grift and speculation.

    After all if we don’t “..the economy will get it punk….”

    What is the point of having a public central bank backed by the full faith a credit of the commonwealth if we don’t use it to bail out con-merchants and ponzi players.

    • And the sad part of all of that is, that most of us were too late to the party to understand how it all works.
      We were all brought up to believe hard work; responsibility; productivity and creativity were what brought economic and social wealth.
      But now we recognise the error of our ways.
      We may as well join in; borrow the max regardless of the consequences, because when the ship goes down, it’s going to take all hands with it.

      • Only problem for me was that i believed in what you said until i was in my late forties .. I went the other way, payed down all debt and want nothing to do with “hard” work anymore and live a more frugal life giving away the consumerism.
        Lot better off mentally and financially.

    • Goldstandard1MEMBER

      True 007, and I think many commenters on here agree on the principal being executed, but at some stage the rubber band must break or we’ll be shaving gold bars to pay for milk. That won’t happen so one more external shock and the rubber band has to snap back into the gov and finanancial system’s nipple.

    • Jumping jack flash

      Someone only needs to cover the interest and that should make everything ok again, in theory.
      In theory the money created from borrowing is available to be used for repayments. In Theory.

      It is finding the interest to pay on that gigantic wad of nonproductive debt that is the tricky part.

      For 20 years the government thought that getting their people to borrow instead of them was a good idea. Instant riches for all, right? But, they forgot to carry the three, and it all crashed at an alarming rate.

      Theoretically the government “only” needs to come up with 100 billion every year to cover the interest, which is getting off pretty lightly if you ask me. Their people still need to come up with the 2 trillion dollars over the next 30 years.

  2. Goldstandard1MEMBER

    Great waterfall chart – Thanks for sharing.
    When it’s presented like that, depression inevitable.

    • Agreed! The offset is all support no substance.

      Don’t go chasing waterfalls
      Please stick to the rivers and the lakes that you’re used to
      I know that you’re gonna have it your way or nothing at all
      But I think you’re moving too fast

      • Don’t go jumping waterfalls
        Please keep to the lake
        People who jump waterfalls
        Sometimes can make mistakes
        And I need love, yeah I need love
        Like a second needs an hour
        Like a raindrop needs a shower
        Yeah I need love every minute of the day
        And it wouldn’t be the same
        If you ever should decide to go away

    • But I disagree that the mortgage deferral has only delivered a $3bn benefit — multiply the average mortgage repayment (P&I) by the number of people who deferred and the number must be substantially higher. Anyone got the numbers?

  3. Ok can we now deport all temp visa holders and ban foreign students from any work activities and a permanent stay on immigration so that citizens can try to get what few jobs may be available.

    • Why the hell would anyone what that?
      Who wants to do the crap jobs for next to nothing when we can all sit at home on JobKeeper and watch Netflix all day 🙂

    • It’s interesting how little has changed in 2000 years. The tension between citizens and slaves is no different today than in ancient Rome.

      Slaves undercut wages, boosting profits and lowering living standards.

      Abolish the slaves and employment/wages go up, but so does inflation.

      • Yeah, IKR! Cause I’m…

        Oh nay na na na nay na, na na nay-ah
        Oh nay na na na nay na, na na nay-ah
        Oh nay na na na nay na, na na nay-ah
        Oh nay na na na nay na, na na nay-ah

        I’m a slave to the music!

    • That is like cutting the branch you are sitting on.Without migrant students there are no universities and jobs associated with Unis.With no immigrants there is no demand for ever increasing number of rentals and that will put the tradies out of work.The demand for white goods will collapse and put shops out of business.The whole ponzi economic model will collapse and you will never get rid of your anger Angryman 🙂

  4. China PlateMEMBER

    its such a furphy from Murphy.
    Parachutes will be provided to all at the edge and a gentle glide slope had by most.
    The Gentle Slope will be king just ask Westpac’s CEO. Watch what they do not what they say

  5. Jumping jack flash

    “Economist Jason Murphy believes that the mortgage repayment cliff will hurt the housing market and economy in one of two ways:

    It will drain the economy of household disposable income…”

    It didn’t even need the “cliff” to do this. The economy was ever so slowly tankng since 2008. Around 2017 it tanked slightly more quickly. Then coronavirus showed up and this exposed the tanking for all to see.

    You can’t seriously look at the decimation of retail leading to flatlining wages and wage theft over the whole 20 year period since 2008 and say that there wasn’t a problem with disposable incomes.

    When 100 billion dollars of disposable income gets sucked into the banks for interest repayments just on mortgages every year, then that’s got to have some effect on disposable income.

    • Right. The whole flattening wages thing is basically covered up by “Equity Mate!” and “My property portfolio just keeps going up in value!”.

      And if you aren’t smart enough to get in on the con, well, you are just a looser.

    • I think “decimation in retail” is the wrong benchmark. Australians have the biggest houses and the most stuff in the developed world. i.e. we dont need anymore crap. The real measure is the deployment of capital (savings/debt) into productive enterprise. In Australia this is as low as it has ever been because muppets are on the housing ponzi bandwagon.

      Those who are not on it look like flogs until the tide turns against those up to their neck in it.

      • +1. The whole debt bubble economy was well underway in the 90’s to disguise failing growth and productivity in the real economy, The GFC first exposed it, and now Covid. We’ll continue with periods of relative calm punctuated by similar crises and big steps down until we reach some sort of equilibrium with the resources that remain, live within our means and move to a steady state economy.

        When we finally arrive, expect a 3rd world standard of living, cos that’s all we have left.

        • Jumping jack flash

          “When we finally arrive, expect a 3rd world standard of living”

          Just a few years away, but only for some.
          Those who are lucky enough to have one or more house-shaped piles of debt that other people are repaying for them, will live like kings.

      • Jumping jack flash

        There’s one thing that you can never have enough of and that’s crap.
        The problem is that too much money is being paid to the bank as interest to be able to afford as much crap as we used to.
        Lowering interest rates every so often did kind of help, but clearly not enough.

        Also consider the gouged cost of living, so those lucky ones who provide the essential goods and services can obtain the debt they need. All of this contributes to less disposable income to spend. Spending disposable income creates wage capacity, and around she goes.

        But I think we agree. It is a bit of a case of chicken and egg. Did the creation of the additional capital to be misallocated come first, or did the misallocation of capital create the additional capital to be misallocated?

    • This!
      The complete and realized objective of converting ‘discretionary’ income into ‘committed’ income via debt obligation.
      We’ve reached the limit and its beyond ugly what lies ahead. Those unable to meet these ‘commitment’s will be the first to fall but many others will tumble too as a consequence.

  6. Banks are already getting ghosted by some of their customers lol
    Anyway, nothing much will happen, banks&borrowers are going to get all the gov help/backing they need.Nothing matter but property prices (which is booming in some areas)

  7. Arthur Schopenhauer

    I have heard Architects are being “let go” at a steady clip. They are usually a Ponzi economy’s “canary in the coal mine”.

  8. I think what is stopping the investors from selling right now is the mindset that you don’t want to be the scaredy cat who didn’t hold their nerve through this and then, the housing market gets away from you.
    It’s the fear of getting out and not being able to get back in, looking like a mug. If this is was just a small blip, then, you are going to “look like a wuss” bailing out early… It would take a truly secure person to admit they can’t face a tsunami and actively get themselves out to sit out this wave…

    • Narapoia451MEMBER

      There’s also the experience of previous blips – where they have seen things start to turn, but it all works out because interest rates were lowered, immigration taps opened etc. It all works out fine, until it doesn’t. One of those times where experience can work against you.