Repayment holidays lower mortgage stress to near pre-crisis levels

Despite unprecedented economic headwinds, mortgage holders across Australia have managed to stave off default, with new research from Roy Morgan showing levels of mortgage stress approaching pre-crisis levels.

In the three months to August 2020, an estimated 751,000 mortgage holders (20.2%) were considered ‘at risk,’ while 433,000 (12.5%) were considered ‘extremely at risk.’ According to Roy Morgan, both numbers are among the lowest recorded.

Apart from Victoria, which had re-entered lockdown at the time following a second coronavirus outbreak, most of the country was “progressing towards a ‘COVID-normal’ situation,” thanks to a raft of support measures from banks and the government.

This comes despite 11.2 million Australians (72%) experiencing a change to their employment circumstances due to COVID-19 in May, with that number remaining elevated at 10.4 million in July.

For many, these employment changes were negative, and included a drop in hours worked, a slowdown or halt in business activity, being stood down, having pay reduced, and being made redundant.

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According to Roy Morgan chief executive, Michele Levine, changes like these are typically associated with an increase in mortgage stress, with job loss in particular causing an immediate jump into a risk category.

“Over two-in-three mortgages rely on more than one income and our analysis shows losing even the lower of these two incomes causes an immediate quadrupling of those mortgage holders considered ‘at risk’ or ‘extremely at risk,” she said.

While the current support measures appear to have fortified the property market, Levine worries they have merely kicked a potential real estate crisis further down the road.

“Because of these measures the impact of COVID-19 is yet to be fully felt, but we already know there will be significant pressures emerging when the support ends,” she said.

“JobKeeper has already been reduced in early October 2020 and is set to end entirely by April 21 while the mortgage deferrals offered by banks to customers in financial distress are set to run out at the same time.

“One of the biggest tasks for banks during the present period is to determine which customers will be able to return to paying their mortgage in the period ahead and which customers will not have that capacity when the deferrals end early next year.”

For information about the assistance available to households and businesses, along with tips to keep your finances in good health amid the current crisis, browse our guide to coronavirus and your finances.