JobKeeper's end doesn't pose a systemic risk for mortgage defaults: Pete Wargent

EXPERT INSIGHT The end of the JobKeeper payment program will not represent a systemic risk for mortgage defaults in the housing market, according to Pete Wargent from BuyersBuyers.com.au. But Wargent suggests at the individual level there might be the potential for mortgage stress after a modest increase in unemployment. “However, the risks of widespread mortgage default have thankfully materially subsided for a number of reasons.” "Housing prices are now rising almost across the board, significantly reducing the willingness to default, and lenders have more flexibility to offer interest-only terms or work with borrowers in hardship. "Notably, lenders have effectively been the ‘shock absorbers’ of the housing market during the pack of the pandemic, trying to mimimise reputational damage and keep forced sales to a minimum”.. “At the individual level there might be the potential for mortgage stress and a modest increase in unemployment resulting from the ending of the JobKeeper program, and as many are switched onto the JobSeeker income support package” Mr Wargent said. Wargent noted that most importantly, the latest update from APRA on loan deferrals showed a huge swing towards the resumption of repayments, to the extent that only $11.7 billion of housing loans remained deferred, or approximately 0.7 per cent of housing loans by value. The ABS reported that private sector job vacancies have increased by 29 per cent since February 2020, to comfortably exceed pre-pandemic levels, while public sector vacancies were also up by 13 per cent over the past year. Unit rents have fallen in the inner cities, but so too have mortgage rates. And, as workers return to offices in the most populous cities, vacancies have generally begun to fall as reduced rents are luring tenants back in.” “Property investors are also turning their attention to units, in search of bargains, which is supporting prices. Analysts are always looking for mortgage stress, but at the macro level, it’s not much in evidence” Mr Wargent said. Mr Wargent said “the risks are generally higher in Melbourne’s high-rise unit market, with more loans remaining deferred than elsewhere in Australia after the state’s extended lockdown period, and higher vacancy rates for units in the CBD”. “However, since most of these properties are owned by investors, overall, the risk of widespread forced selling is low. Local buyer’s agents are already reporting that unit prices are rising ex-CBD, so the mortgage default risks are declining all the time” Mr Wargent said.