More borrowers to fall behind on mortgage repayments when support measures end

author-avatar By on March 16, 2021
More borrowers to fall behind on mortgage repayments when support measures end

A growing number of borrowers are expected to struggle to make their mortgage repayments, but surging house prices could curb this.

Credit rating agency Moody's has warned mortgage delinquency rates will rise in the first half of the year once mortgage relief measures taper off at the end of March and government support measures expire.

Mortgage arrears rates had been expected to rise in the December half of 2020, but a combination of record low interest rates and a stronger than expected economic recovery helped shield much of this.


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

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 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.

But with coronavirus government support measures and loan deferrals ending, Moody's expects mortgage delinquencies to rise as borrowers have to resume their repayments. 

This is despite the currently booming property market, which Moody's says could reduce some of the pain for borrowers.

"Rising house prices will curb mortgage delinquencies risks to some extent, because they will make it easier for borrowers in financial difficulty to sell their properties and repay loans," said Moody's Vice President and Senior Credit Officer Alana Chen. 

"But the positive influence of rising house prices will not be enough to prevent delinquency rates from increasing in the first half of 2021."

Moody's expects the situation to turn around in the latter half of the year.

"Towards the end of 2021, as the economic recovery gathers momentum, we expect the situation to turn around and for delinquency rates to improve."

Other analysts including Standard and Poor (S&P) agree.

S&P's recent Performance Index Australian prime mortgages shows mortgage arrears rose to 1.37% in December 2020 compared with 1.28% a year prior. 

S&P analytical manager Kate Thompson said mortgage arrears are expected to surge as loan deferrals expire.

“We expect Covid-19-related arrears to more meaningfully surface beginning in the second quarter of 2021, following the expiration of mortgage-deferral periods in March 2021,” Ms Thomson said.

“Strong property market performance will also help existing borrowers by enhancing their equity positions in their homes, improving their refinancing prospects.”


Photo by Pat Whelen on Unsplash

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.

*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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Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's passionate about empowering people to make smart financial decisions and improve the financial literacy of Australians by translating complex finance topics into understandable, relatable content.

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