With the economy in recovery after the 2020 pandemic recession, Australian homeowners are defying the odds by managing to keep up with their mortgage repayments. There are concerns though for some borrowers with larger loans.
Stimulating the trend is an improving job market, government stimulus packages and lower interest rates. According to S&P Global Ratings, mortgage arrears fell to 0.94% in March, down from 1.03% in March 2020.
“The resilience of household balance sheets, bolstered by government stimulus measures and low-interest rates, has enabled many borrowers to build up repayment buffers, cure prior arrears positions, and stay on top of their mortgage repayments,” the S&P report said.
With predictions that a small fraction of mortgage-holders could struggle with repayments in coming months resulting in dependency on hardship support arrangements, the report found it won’t have much impact on arrears.
“This is unlikely to cause any significant upward pressure on arrears while interest rates are low and employment prospects strong.”
Borrowers still dependent on the mortgage freeze in March were more likely to have smaller amounts of equity, combined with larger debts. Figures showed Victoria, South Australia and New South Wales experienced larger numbers of ongoing mortgage deferral arrangements than in Queensland and Western Australia.
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The report sings a different tune from last year’s dire forecasts, where unemployment was expected to rise significantly, translating to a predicted peak in housing foreclosures. The fresh assessment has proven emergency measures prevented worst-case outcomes.
Workers who remained employed during the pandemic have scrambled to get into the property market to benefit from low borrowing costs, with many stretching their finances as housing prices soar.
Some borrowers are getting themselves into hot water with debts up to six times their income. S&P highlighted that many of these home buyers are entering the market with a deposit substantially less than 20%, with loans much greater than pre-COVID.
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At the heel of rising housing prices, financial regulators are assessing stricter lending criteria with these figures a major consideration.
Although S&P acknowledged the social benefits of homeownership when debt is serviced without causing financial distress, they cautioned the risk of larger debts.
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Many borrowers with a high loan-to-value ratio haven’t accumulated a home loan buffer, due to the short period of time they’ve been making repayments.
The report noted that with JobKeeper payments ending, self-employed borrowers in Melbourne could be hit hardest by Melbourne’s recent lockdown, with those in the leisure and closed hospitality sectors to be most vulnerable.
While many casual workers lost shifts, the report found them less likely to be homeowners.
During the pandemic, savvy borrowers looked ahead making extra repayments to buffer themselves from potential future lockdowns without government stimulus.
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Many borrowers remain in a good position due to their forward-thinking and are set to keep up with their repayments aided by the recovering economy, low interest rates and rising property prices.
S&P predicts arrears will remain well below the peak of the global financial crisis, and if some borrowers do default on their mortgage, losses will likely be recouped selling into a rising market.
The report warned it could be several months until we see the effects of the last borrowers coming off mortgage freezes, and whether they will be able to maintain repayments.
Words by Katy Holliday
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