Loan Deferrals

<html><body>
Home loan deferrals secured early during the pandemic continued to decline in November.

They are now down to 2.8 per cent of home loans and 2.3 per cent of all loans, according to the latest APRA data..

The share of loans deferred has fallen from above 10 per cent at the May 2020 peak. 

<img alt="" height="948" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/loan_deferrals_december.jpg" width="1200">

Source: APRA

While Victoria retained by far the highest share at nearly four per cent, following the state's lockdown, there was also a sharp decline among Victorian borrowers. 

<img alt="" height="894" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/housing_deferrals_state_december.jpg" width="1200">

Source: APRA

Property commentator Pete Wargent expects deferrals will be back into the normal range by the end of March, “assuming lockdown measures don't encroach again.”

Tim Lawless at CoreLogic noted “the significant reduction in deferred loans implies the risk of a surge in distressed properties coming on the market has reduced substantially.” 
“However there are likely to be some key precincts where distressed property sales will be more common, such as inner city high rise apartment markets where vacancy rates have risen substantially and rents have reduced,” Lawless said.

APRA calculated as at 30 November, according to data submitted by ADIs with over $20 million in loans subject to repayment deferral, a total of $60 billion worth of loans are on temporary repayment deferrals, which is around 2.3 per cent of total loans outstanding. 

Exits from deferral continued to outweigh new entries for the fifth straight month in November, with $32 billion in loans expiring or exiting deferral and $7 billion entering or being extended. 

Victoria remains the state with the highest proportion of loans subject to deferral amongst the states and territories, with 3.2 per cent of loans deferred compared with the rest of the country at 1.7 per cent. 

 
</body></html>

The share of loans deferred has fallen from above 10 per cent at the May 2020 peak

jchancellor

Home loan deferrals continue to decline from May peak

<html><body>
EXPERT OBSERVER
While some believe that mortgage stress will have a major negative impact on the housing market, deferrals are now clearly in decline, and Australia’s high level of loan repayment deferrals is unlikely to prevent a housing market rebound in 2021, according to Pete Wargent, co-founder of BuyerBuyers.com.au.
APRA’s latest figures reported housing loan deferrals decreased to $167 billion in July from a total $1.8 trillion loan book for authorised deposit-taking institutions (ADIs), representing about 9 per cent of loans still subject to housing loan deferrals.  
Mr Wargent of BuyersBuyers.com.au said that “there is a significant ongoing improvement underway, although clearly 9 per cent of loans subject deferral is still an elevated number, and significantly higher than what would be considered a typical figure for mortgages in arrears”.
Even in Melbourne, Mr. Wargent said, consumer confidence has increased recently as demonstrated by Victorian reporting a sharp increase on ANZ-Roy Morgan’s latest survey, as signs have emerged that newly confirmed COVID-19 cases have been brought under control, implying that restrictions on movement may be relaxed sooner than previously feared.
However, some risks remain, especially relating to landlords with rental apartments in the major capital cities. For example, the continued impact of the COVID19 has led to the extension of an eviction freeze out until March 2021 in New South Wales. This applies further cash flow pressure on landlords, who very often rely on the rental income to service their mortgage.
The weekly payroll figures suggested that between mid-March to mid-May, some of the most significant declines in payrolls occurred in sectors such as accommodation &amp; food services (–29 per cent), arts &amp; recreation (–26 per cent), administration &amp; support services (–10 per cent).
By the first week of September there had only been a modest recovery in accommodation and food services (still -22 per cent) and arts &amp; recreation (-14 per cent).
“This is materially higher than the normal acceptable rate of arrears which might be around 1 to 2 per cent, and in the range of 2 to 3 per cent in states and territories which have been struggling economically” Mr Wargent said.
Doron Peleg of Riskwise Property Research said “banks have a very clear strategy to minimise forced sales as much as possible. We’re seeing lenders, who are our clients, assessing the risks and opportunities for price increases at the individual loan level, before making specific decisions regarding the extensions of holiday repayments and flexible arrangements with borrowers.
“The significant improvement in buyer sentiment in relation to dwelling prices, (as demonstrated by preliminary auction clearance rates that are consistently above the 70 per cent mark for houses in Sydney), show that the risk associated with the vast majority of the deferred loans is lower than expected” Mr Peleg said.
Pete Wargent, co-founder of BuyersBuyers.com.au, a national marketplace offering affordable property buying services to all Australians, said that many borrowers had opted to defer repayments without necessarily being at risk of default.
“Mortgage brokers have signalled that many borrowers elected to take a repayment holiday in order to maintain a financial buffer, as a form of insurance policy, rather than through genuine duress. And targeted stimulus measures providing income support have been very effective, as has been borne out by the lowest bankruptcy and insolvency figures in a quarter of a century”.
“Moreover, banks have reported lately that increasingly owners are beginning to make repayments again, with about 109,000 loans being repaid again by the end of July, suggesting that the figures will continue improve over the coming six months” Mr Wargent said.
Risk areas remain but employment is recovering
The recovery in employment was comfortably stronger than expected through August, despite being held back by Victoria.
Mr Peleg of RiskWise said “we’ve seen that the shutdown measures have disproportionately impacted lower income occupations, and as such there is a risk of rental arrears continuing to rise over the coming year. And this is a time when inner city unit vacancy rates have been at record highs, including in Sydney, Melbourne, and Brisbane”.
“Therefore, we expect that some landlords will experience cashflow pressures in 2021, as previously projected in our Top 10 Unit Oversupply Areas report”.
Regulatory monitoring
The regulator APRA is keenly aware of the risks when mortgage holidays end, and  issued a letter to deposit-taking institutions following a review of plans for the assessment and management of loans with repayment deferrals. 
ASIC noted that some plans included reference to borrowers accessing their superannuation as an option that could potentially be considered if borrowers are unable to resume repayments.
Mr Peleg of RiskWise said that “overall, there is a very low incentive for lenders to push stressed borrowers into default leading to a wave of forced sales or foreclosures, and practical solutions are likely to be found”.
“When a risk becomes well known and widely discussed it rarely blows up into the major outcome that is feared, at least in part because when risks are discussed so openly solutions are found.”
Mr Wargent of BuyersBuyers.com.au “we have seen a similar dynamic previously with the feared interest-only loan reset in recent years, which did not lead to widespread arrears or defaults, despite much breathless reporting.
“This is a different and somewhat unique situation, but we expect lenders to work with borrowers and regulators to smooth the transition, especially at a time when mortgage rates are at record lows and interest serviceability has improved so significantly”.
“Overall, borrowers are now beginning to make repayments again, employment is generally recovering steadily, at least outside Victoria, there is a noticeable improvement in housing measures and projections, and we expect lenders to work closely with borrowers in the first quarter of 2021 to manage the transition, with regulatory oversight” Mr Wargent said.
Fewer forced sales
Mr Peleg said “the upcoming changes to responsible lending, could significantly decrease the number of forced sales. Responsible lending obligations have created a supply barrier of credit from the banks to lenders and particularly for property investors.”
“The upcoming changes will simply enable banks, that have been experiencing a fierce competition from non-bank lenders, to compete more aggressively, i.e. to simply write more loans.
“Obviously, this can have a clear flow-on effect on the aggregate demand for property, and therefore on property prices. The likely increase in property values make the current deferred loans less risky, as borrowers have properties with higher likelihood to increase in value in the future. “
The announced changes may also provide a variety of re-finance options for borrowers.
“Consequently, the number of forced sales is likely to be low, and it is highly unlikely that forced sales will have a macro impact on the property market” Mr Peleg said.
</body></html>

j.ballantyne1990-6AQqhLzZaK

Four reasons loan deferrals won't derail the housing recovery: RiskWise's Doron Peleg

<html><body>
<div id="story-description">
Banks will provide more breathing space to those hit by COVID-19, with as many as 779,000 lenders to get a further four months repayment deferrals.
The paused accounts amount to $236 billion. 
</div>
The 10-month total deferral of repayments for households and businesses unable to restructure their debt or restart paying was facilitated by the federal government and the banking regulator.
The Federal Treasurer Josh Frydenberg has welcomed the extension. 
"If somebody's lost their job and they've got a residential mortgage or indeed if their business has been closed and they've got a commercial loan, then they would be cases where the customer would need to talk to their bank, and I understand it that the bank is going to be very supportive of their customers," he said.
He said the Australian Prudential Regulation Authority would continue to ease regulations on the banks, to encourage them to support customers.
The new measure follows the Reserve Bank of Australia commentary that while the economic hit from the pandemic was not as severe as initially feared, the domestic economy was experiencing the biggest contraction since the 1930s. 
“Since March, an unprecedented 800,000 people have lost their jobs, with many others retaining their job only because of government and other support programs,” the RBA statement said.
The initial repayment pause period was for up to six months as the pandemic took hold in March.
Some have restarted repayments already.
About 20 per cent of CBA customers on loan deferral arrangements have made repayments.
ANZ CEO Shayne Elliott said customers who had not yet asked for a six-month deferral could still do so.
The Australian Banking Association advised customers who could start repaying at the end of the initial six month would be required to. 
It noted the other options during the second phase of assistance included extending the loan term, converting to interest-only payments for a period, consolidating debt or opting for the additional four-month deferral.
RateCity.com.au research shows a mortgage holder who extends their deferral could end up paying $9,769 extra over the remainder of their loan, if they pause their home loan for 10-months and don’t make extra repayments to catch up. This assumes the person is five years into a 30-year loan with a balance of $400,000.
</body></html>

Loan Deferrals

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Loan Deferrals

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News