Mortgage holidays: Almost one in two resume home loan repayments

Almost half of all Australians who deferred their mortgages have resumed repayments, according to data from seven large banks, indicating the country is speedily recovering from its first recession in nearly three decades. 

About 500,000 mortgages were deferred at the height of the pandemic, the Australian Banking Association (ABA) said, but six months on and 244,000 people have resumed repayments.

“This is a good sign for the economy,” Anna Bligh said, chief executive of the ABA. “It shows that more Australians are getting back on their feet.”

Although 45 per cent of people were able to resume their repayments, it’s unclear how long it’ll take to get the remaining 55 per cent back on their feet. Many will have the option of extending mortgage deferrals for a further four months.

The return to form for 244,000 mortgage holders follows the sudden economic fallout brought by the COVID-19 pandemic, when 932,000 people lost their jobs in the six months until June, and the country’s economy shrank by 7 per cent, putting it into its first recession in 29 years.

About 15 per cent are unlikely to afford their loans

The Reserve Bank of Australia anticipates the last 15 per cent will struggle to repay their mortgages. 

“Some borrowers may be able to restructure their debt (such as by extending the term or temporarily switching to interest-only payments) and lower their repayments,” the RBA said, in its recent Financial Stability Review.

“However, some borrowers may need to sell their property to repay their debt.”

An estimated 2 per cent of all deferrals would default on their loans and fall into arrears, the RBA said, double the current average.

This could result in a sell-off of homes, they said, and lead to prices potentially dropping further in markets where demand is already weak, such as Sydney and Melbourne.

Westpac’s chief economist estimates 60,000 homes could flood the market next year, temporarily halting the property market’s recovery.

Businesses are slower to recover

Small and medium businesses have been showing signs of recovery too, but their pace trails that of resumed mortgages. 

Of the 200,000 businesses that paused their loan repayments, about 82,000 have been able to resume, accounting for 41 per cent.

“These loan deferrals have helped hundreds of thousands of Australian families and small businesses survive the pandemic,” Ms Bligh said.

A sharp rebound atypical to most recessions

There’s an adage favoured by economists: ‘recessions take the lift down, recoveries take the stairs up.’

But the fallout and recovery from the coronavirus pandemic has been quicker than expected.

“This is not your typical recession,” Craig James said, chief economist at CommSec.

“The Reserve Bank may have identified a litany of risks, but none are being converted into events. 

“In fact economic data continues to surprise on the upside.”

Key economic factors indicate that -- while the COVID-19 pandemic is contained and the government is providing a range of stimulus payments -- a sense or economic normalcy is returning.

Australians looking to buy their own home secured a record amount in new loans for the month of August, according to the Australian Bureau of Statistics, driven by the strong presentation of first home buyers. However, investor loans continue to trail.

Consumer confidence has also lifted by 32 per cent in August and September, according to the Westpac-Melbourne Institute Index of Consumer Sentiment, pushing it to its highest level since July 2018. 

The growing confidence was attributed to the containment of the coronavirus pandemic, the federal budget drafted in response, and an expectation further financial relief is on the way from the RBA.

But economists warn the path forward is riddled with uncertainties owed to the pandemic, particularly as the government pulls away the safety net of stimulus payments such as JobSeeker, JobKeeper and Homebuilder. 

Compare home loans in Australia