Australia’s mortgage cliff continues to shrink

At the beginning of this month, the Australian Prudential Regulatory Authority (APRA) released data revealing that the number of mortgage deferrals had shrunk by around one-third, from a peak of 488,249 mortgages in May to 324,894 mortgages in September.

Yesterday, CBA updated the market on its loan deferral program, which showed that the number of customers on mortgage holidays has shrunk from a peak of 10.8% in June to 4.0% in October:

There has been a net reduction in deferred home loan facilities of 51% during the month of October, represting a monthly net reduction in deferred balances of ~$18 billion.

9,300 facilities have been granted an extension of their deferral arrangement for a period of up to 4 months. Victoria continued to account for the largest proportion of monthly deferral extensions (39%).

Approximately 45,600 home loans remained in deferral as at end October (balances ~$19 billion). Of these 27% are due to expire and exit in November (balances $4.8 billion), subject to possible extension.

Of the 158,000 total home loan deferrals approved between March 2020 and 31 October 2020, 22,000 remain on their initial deferral arrangements. Of the remainder, 23% have extended their deferral period (for up to 4 months), 73% have returned to making full repayments, 4% have been provided further assistance and <1% have been impaired.

The below graphics summarise the key movements in the aggregate CBA mortgage deferral data:

 

Victoria continues to dominate outstanding mortgage deferrals, accounting for 38% of total deferrals despite their 26% share of CBA’s mortgage book:

Finally, the risk profiles of CBA’s deferred mortgages is provided below:

Highly geared property investors on interest-only mortgages would be most at risk of default or forced sale.

Overall, however, risks in the mortgage market have dissipated significantly over recent months.

Unconventional Economist
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Comments

  1. The deferrals may have shrunk but can these households now comfortably service the debt in the long run? Many will have built up a few months’ buffer, but after that? What happens when JK ends? Will unemployment increase or decrease?

    On the ABC, this morning, reports that every since the JK / JS taper many household finances have deteriorated sharply. Obviously, these must all be renters so I’m sure it’ll be okay 😉

  2. Jumping jack flash

    The super is bailing out the system.
    All those who are still deferred between now and March/April next year should be able to flip to a FHB clutching 40K of super to leverage up 95% and relieve the poor unfortunate from their debt burdens. The amount of new lending right now is phenomenal.

    The cashed up FHBer with 40K of super and a smile, can take the debt from the deferred unfortunates no problems, generating the expected amount of capital gain.

    prices have risen at least by 50K now in my area since the end of last year, all in the last few months.
    Houses that were around 400 -420K are now upwards of 450K.

    The capital gains created from the wave of debt transfers up until April 2021 should then feed into the next wave of lending, as the unfortunates find their feet and set out to buy again with the nice shiny pile of someone else’s debt.

    … And that is how the Debt Engine of the New Economy works in ideal conditions, in a nutshell. Can it keep going this time? Time will tell.

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