Vidya Kathirgamalingam - 12 Aug, 2020

Second COVID-19 outbreak pauses home loan market

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Australia’s housing market has been showing signs of recovery, however this is proving to be short-lived in light of a growing second wave of coronavirus.

According to the Australian Bureau of Statistics (ABS) June 2020 Lending Indicators report, new housing loan commitments rose by 6.2%, with these loans having a total value of $17.43 billion.  

This follows the 11.6% drop that was seen in May and the steady decline that had been seen in previous months.

“The rise in housing loan commitments in June reflects the easing of COVID-19 restrictions in May on auctions, open houses and mobility in general,” said ABS Chief Economist Bruce Hockman in a media release.

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However, Hockman has noted that despite the rebound, the value of housing loan commitments has seen a 10% decrease since March.

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Melbourne’s lockdowns placing a strain on the national loan market

With Melbourne implementing stage 4 restrictions from 2 August 2020, this figure is only set to decrease further.

Melbourne’s housing market has been hit the hardest in Australia, with CoreLogic reporting that the city has seen a 3.5% mounting decline in property values.

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According to CoreLogic, Melbourne accounts for 25% of Australia’s economy and consequently the economic disruptions being faced by this city is “dampening business and consumer confidence nationally”.

Prime Minister Scott Morrison is predicting that the cost of Melbourne’s lockdown on the national economy could range between $10-12 billion.

The city is also heavily reliant on overseas migration to drive their housing demand and labour market, all of which has come to a standstill because of instilled travel bans.

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The impacts of loan deferrals and government schemes

It is also predicted that the conclusion of mortgage repayment holiday schemes and the decreasing government fiscal support will add to the pre-existing strains on the home loan market.

“Urgent sales are likely to become more common as we approach these milestones, which will test the market’s resilience,” said Tim Lawless, the head of research at CoreLogic.

A buffer has been made available to avoid this “cliff for customers,” with the Australian Banking Association (ABA) announcing that an extension of up loan deferrals for up to four months will be made available.

According to the ABA over 800,000 loans have been deferred and the Australian Prudential Regulation Authority (APRA) has reported that these loan deferrals included a total value of $195 billion worth of home loan deferrals.

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However, it is expected that government schemes and incentives will add an additional level of support for those struggling financially with their loans and will aim to drive the market.

These schemes include the HomeBuilder scheme which is available to build a new home or substantially renovate an existing home, the state and territories offered First Home Owner Grant as well as the recent slashing of stamp duty costs for first home buyers in NSW.

ABS data shows that 31.1% of all owner-occupied loan commitments were first home buyers and first home buyer loan commitments increased by 6.2% in June. 

Support is available if you’re affected by COVID-19 and experiencing financial difficulty in managing your home loan. Get in touch with our team to find out what lender options and government schemes you could be eligible for, to ease your home loan commitments.

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Words by Vidya Kathirgamalingam


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