One in ten home loans deferred, amounting to $195bn

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on August 04, 2020
One in ten home loans deferred, amounting to $195bn

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Data from the prudential regulator released today reveals 11% of home loans have been deferred to the value of $195 billion.

The Australian Prudential Regulation Authority (APRA) data shows that up to 30 June, total loans deferred amount to $274 billion.

Home loans make up $195 billion of that figure, while small business loans account for $55 billion, or 17% of the total small business loan book in Australia.

A bulk of the home loans deferred come from investors, at 34% of deferrals.

Additionally, while 95% loan-to-value ratio loans make up just 5% of the overall loan book, they account for 8% of deferrals. 

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
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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
NSW/VIC/SA METRO & INNER REGIONAL AREAS
NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
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REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.

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 June 28, 2022. View disclaimer.

"The housing risk profile shows that housing loans granted repayment deferrals are more likely to be extended to owner-occupier borrowers, subject to principal and interest repayments, and have higher loan to value ratios than all housing loans," APRA's report said.

In June, $40 billion worth of loans were approved for deferral, while $18 billion exited deferral. 

Small business loans experienced a decrease in the deferral rate - down to 17% from 18% from May to June.

Loan deferrals were initially announced by the Australian Banking Association in March, with deferrals set to last for six months, but in early July deferrals were extended for another four months.

The risks of deferring

Although borrowers may not have to pay anything during a deferral, interest is still capitalised, meaning they could be paying more over the life of the loan.

With total loan deferral periods lasting up to ten months, in late March Standard and Poor's said Australian 'prime' mortgage bonds have enough cash reserves to last nine months of falling investment levels.

Falling investment levels could result in mortgage bond rating downgrades, which could tighten credit at the retail level, similar to what was seen during the global financial crisis from 2007 to 2009.

Additionally, research from investment bank Morgan Stanley found 55% of mortgage holders in Australia were receiving some form of income support, with 15% of those surveyed receiving unemployment benefits such as JobSeeker.

Investment commentator Alan Kohler wrote in The Australian that borrowers are heading for a fiscal cliff.

"The average mortgage is $467,700, so those people collectively owe more than $1 trillion," he said.

"Even if this group’s average mortgage is half that, and even if only a third of them don’t get a job and can’t meet their repayments, the loans in default would be equal to the entire capital of the Australian banking system."


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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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison strives to deliver and edit news and guides that are engaging, thought-provoking, and simple to read.

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