Mortgage cliff turns into pothole

The Australian Bankers Association (ABA) yesterday released data on its members’ deferred loans, which shows the mortgage cliff that was towering over Australia’s property market last year has shrunk into a molehill, down 97% from its peak at the end of February:

Mortgage cliff gone.

In raw numbers, there are now only 22,480 mortgages still under deferral, down 95% from the peak of 448,864 deferrals in April 2020:

Mortgage deferrals are down 95% from last year’s peak.

Therefore, risks relating to mortgage deferrals have evaporated. Not only are outstanding balances immaterial, but debt repayments (i.e. principal and interest) as a share of household disposable income have fallen to their lowest level in 17 years, according to the Bank for International Settlements:

Debt repayments as a proportion of household income are the lowest since 2003.

Australian households also accumulated an extraordinary $187 billion of savings in calendar year 2020 (see here), suggesting most are well ahead on their mortgage repayments and have significant cash buffers.

This should ease concerns that the ending of JobKeeper and the JobSeeker coronavirus supplement poses a significant macro risk for the economy and property market.

There is actually a huge pent-up supply of unspent stimulus in the form of household savings that are available to be spent across the economy, including on property and loan repayments.

Unconventional Economist
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