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.

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 2019. They are (in descending order): Credit Union Australia, 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.

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.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Emma joined Savings.com.au as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).

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