1.5 million Australians in mortgage stress, defaults expected amid recession

author-avatar By on September 03, 2020
1.5 million Australians in mortgage stress, defaults expected amid recession

Photo by Jeremy Bishop on Unsplash

More than 1.5 million Australians are under mortgage stress and a rise in mortgage arrears and defaults are likely amid the nation's deep recession.

New data from Digital Finance Analytics (DFA) shows that for August 2020, the mortgage stress rate rose to 40.1%, which equals 1.5 million households. 

DFA defines mortgage stress as when household cashflows are negative, rather than the more widely used measure of a household paying more than 30% of their income on mortgage or rent. 

"Stress is assessed in cash-flow terms, and when money in is not sufficient to cover the costs of the mortgage and other regular outgoings, the household is flagged as stressed," said DFA principal Martin North.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner-occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 18, 2021. View disclaimer.

The figures show that a massive 102,273 households are at risk of defaulting on their mortgages with Tasmania, Victoria and Western Australia leading the way. 

In Tasmania, almost half (48.8%) of households are under mortgage stress, making it the most financially stressed state in the country just behind Victoria with 44.2% of households under mortgage stress.

In Western Australia, 43.4% of households are behind or struggling to make their mortgage repayments. 

bystate

Source: Digital Finance Analytics

Mr North said Stage 4 lockdown restrictions in Victoria could worsen rates of mortgage stress.

"The August 2020 data from our surveys continues to tell a sorry tale of more households feeling the pinch, whether they are mortgaged, renting or investing," Mr North said.

"Within the numbers there was a slid in Victoria in particular reflecting the latest lock down and the rising pressure on business there."

The data found that young growing families and urban households, which includes many first home buyers, were under the most mortgage stress.

bysegment

Source: Digital Finance Analytics

Rental stress also remains a significant issue, with over 41% of renters (1.7 million households) struggling to afford their rent. 

Again, young growing families and urban households were the most impacted, with 74% of young families under rental stress. 

The data also found that investors are struggling, with 25% (826,000 households) under water or trying to offload their investment properties as rentals slide and property values decline. 

Expect a rise in mortgage defaults, forced sales

Mr North said we could expect to see more mortgage defaults and forced sales. 

"Clearly the fiscal cliff, which is now legislated, will push more over the edge. Expect higher default levels over the next few month, more forced sales and less household consumption," Mr North said. 

A new report from analyst firm S&P Global has also predicted a rise in mortgage arrears and defaults in the final months of 2020, as the deadline for mortgage deferrals fast approaches. The Australian Banking Association (ABA) has announced it will extend the mortgage deferral period by another four months for customers experiencing ongoing financial difficulty. 

S&P Global's mortgage report said the number of mortgage arrears and defaults will largely depend on when mortgage support measures end. 

“We expect arrears to begin surfacing in the second half of 2020, and losses to emerge in 2021,” the report said.

“Mortgage arrears performance is meanwhile likely to vary by state and territory, reflecting their different paths to economic recovery.”

The report identified Sydney’s inner, southern and other south west regions, Melbourne’s east and the Mornington Peninsula and Queensland’s Gold and Sunshine Coasts as "hardship hot spots" as those areas have been more exposed to lockdowns and drops in tourism. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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