Australia's biggest bank said the economic fallout from COVID-19 could see house prices drop up to 32% in a worst case scenario.
Commonwealth Bank's (CBA) worst-case scenario of a 32% drop in house prices assumed a prolonged downturn as a result of the pandemic, with unemployment to hit 9% this year before falling to 6.5% by 2022.
This scenario also assumed a two year recession, with growth shrinking by 7.1% this year and 0.8% next year, before slightly rebounding by 2.3% in 2022.
A shortened downturn, or V-shaped recovery, would see house prices drop by 'just' 11%, with the unemployment rate marginally better off at the end of the year at 8.25%.
The sharp rebound would see a fall of 6% in growth, rising by the same margin in 2021 and rising again by 3% in 2022.
However, even in this improved scenario, unemployment would still only fall to 6.5% in 2022.
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.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
CBA released the scenarios as part of its March quarter trading update and said it had set aside $1.5 billion to cover potential losses from the COVID-19 recession.
It said key drivers of the fall in house prices were unemployment, underemployment and changes to income, and uncertainty remained regarding the duration and severity of the COVID-19 impact.
CBA Chief Executive Officer Matt Comyn said in a statement the bank was doing everything it could to support Australia through these challenging times.
"The Bank is well funded, with significant levels of excess liquidity and strong capital," Mr Comyn said.
"The strength of the Bank means we are well placed to support our customers and the broader Australian economy.
"Today’s announcement of an additional credit provision of $1.5bn for the potential longer term impacts of COVID-19 further reinforces our already strong provisioning and balance sheet settings."
NAB also said in April house prices could drop by a cumulative 30%, potentially falling by 20.9% in 2020, 11.8% in 2021 before rebounding by 2.5% in 2022.
ANZ was more optimistic, and said house prices would drop by just 10% nationally, but Sydney and Melbourne would be worse hit, dropping 13%.
More than 200,000 borrowers ask for loan repayment deferrals
CBA said it had repayment deferral requests on approximately 144,000 home loans with balances totalling $50 billion, 71,000 business loans with balances totalling over $15 billion, and 25,000 personal loans.
The bank saw over 1 million calls and online requests for help, with calls to its hardship line increasing by 800% from the start of the pandemic.
CBA said its controversial move to reduce home loan repayments to the minimum had released up to $3.6 billion to Australian households.
The move was criticised by consumer groups, as the reduction would increase the length of the loan and rack up tens of thousands in additional interest charges.
CBA also said it had approved more than 6,500 loan applications under the Government's small and medium-sized enterprise Guarantee Scheme, totalling over $500 million of new lending.
The largest number of applications came from retail trade (18%), followed closely by construction (16%), accomodation, cafes and restaurants (14%), and business services (12%).
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): 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.
*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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