100,000 households could default on their home loans when Jobkeeper ends

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on June 04, 2020
100,000 households could default on their home loans when Jobkeeper ends

Photo by Christian Erfurt on Unsplash

New research shows mortgage stress has soared due to the COVID-19-induced recession.

Digital Finance Analytics (DFA) found to the end of May, the percentage of households in mortgage stress reached 37.5%, equal to 1.42 million households. 

In addition, almost 100,000 households could default on their loan when the JobKeeper scheme comes to an end in September. 

DFA founder Martin North said households are considered “stressed” when their income doesn’t cover their ongoing costs.

"The mix of households in stress is changing, as a larger number of affluent households are finding their finances are under pressure," Dr North said.

"Indeed, whilst many battlers are under pressure, they are used to it, but more affluent households are experiencing financial pressures as incomes have dropped."

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

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • 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%
UNLIMITED REDRAWSSPECIAL 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%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • 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
Variable
More details
ZERO APPLICATION FEESFEE FREE OFFSET
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
ZERO APPLICATION FEESFEE FREE OFFSET

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

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO APPLICATION FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO APPLICATION FEES

Yard Home Loan (Principal and Interest) (Special) (LVR < 80%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO UPFRONT OR ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO UPFRONT OR ONGOING FEES

Owner Occupier Accelerates - Evaporate (LVR 60%-70%) (Principal and Interest)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO UPFRONT OR ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO UPFRONT OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 80%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
UNLIMITED EXTRA REPAYMENTS
UNLIMITED EXTRA REPAYMENTS

Basic Home Loan (Principal and Interest) (LVR < 60%)

    Variable
    More details
    EASY DIGITAL APPLICATION
    EASY DIGITAL APPLICATION

    Neat Variable Home Loan (Principal and Interest) (LVR 70%-80%)

      Variable
      More details
      $0 APPLICATION FEE
      $0 APPLICATION FEE

      Budget Home Loan (Principal and Interest) (LVR < 80%)

        Variable
        More details
        100% FULL OFFSET ACCOUNT
        100% FULL OFFSET ACCOUNT

        Offset Package Home Loan (Principal and Interest) (LVR < 60%)

          Variable
          More details
          LIMITED TIME OFFER
          • Fast turnaround times, can meet 30-day settlement
          • No ongoing or monthly fees, add offset for 0.10%
          • Extra repayments + redraw services
          LIMITED TIME OFFER

          Smart Booster Home Loan Discounted Variable - 1yr

          • Fast turnaround times, can meet 30-day settlement
          • No ongoing or monthly fees, add offset for 0.10%
          • Extra repayments + redraw services

          Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *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. Rates correct as of May 24, 2022. View disclaimer.

          He said while JobKeeper had been a saving grace for many, other income streams hadn't been supplemented, causing stress. 

          "They are also exposed to property investments which are not performing, higher vacancy rates and the like; and in some cases, reduced hours too,"

          "Typically, it can take two to three years for stressed households to either sell up on their own volition, or get foreclosed, so we expect higher default ahead given unemployment will be under 7% by the end of next year."

          Dr North said tenants were also feeling the pinch, with rental stress rising and consequently putting pressure on investors. 

          "Around 12% of investors are indicating they may consider selling in the next year, and around half have been using Airbnb to let their places, which is now not possible." 

          He added younger families were most affected by mortgage stress, with the rise in stress not wholly confined to metropolitan areas. 

          "The highest proportions are in Tasmania. Households with low incomes and strong rises in prices," he said.

          "And young growing families, including first-time buyers are most exposed."

          CommBank and Westpac recently announced they would be offering temporary switches to interest-only repayments for borrowers on principal and interest payments, as part of their COVID-19 financial hardship support measures.

          Dr North said he was worried about borrowers who took up such offers, as they would suffer in the long run. 

          "I am not sure switching to interest-only loans is a smart move as capital still has to be repaid at some point," he said.

          Household debt and high unemployment Australia's 'Achilles heel'

          AMP Capital chief economist Shane Oliver said record-low mortgage rates were keeping the property market functioning for now.

          "This is keeping mortgage debt interest costs as a share of household income well below historic highs even though the ratio of household debt to income is at a record high of around 200%, Mr Oliver said.

          "Low mortgage costs also make the funding costs for an investment property very low."

          Mr Oliver said JobKeeper was the only thing stopping a complete collapse in the property market. 

          "Government support measures have provided a huge boost to household income, supported businesses, supported employment for around 3.5 million workers, prevented a confidence zapping surge in measured unemployment and with bank mortgage payment holidays are preventing a sharp rise in mortgage delinquencies and hence forced sales," he said. 

          But Mr Oliver said the combination of high unemployment and high household debt was Australia's "Achilles heel", and turning JobKeeper and other stimulus measures off could be disastrous. 

          "But once the support measures end later this year, measured unemployment will likely rise to around 8% and take a long time to fall back to the pre coronavirus levels around 5.2%," he said.

          "This in turn is likely to lead to some increase in mortgage defaults as bank payment holidays (for around 440,000 mortgages) end, boosting forced sales and act as a drag on property demand, albeit it’s unlikely to be anywhere near what would have occurred in the absence of support measures through the shutdown."


          Disclaimers

          The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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          author-avatar
          Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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