Research conducted by Ray Morgan has found that ‘mortgage stress’ is already a danger
for one-in-five mortgage holders as ‘loan holidays’ are set to end.
Specifically, they found that an estimated 783,000 mortgage holders (or about 20%) were
at risk of ‘mortgage stress’ in the three months to November 2020.
This is unchanged on a year earlier in late 2019 although up from the record lows in the
middle of last year when only 668,000 mortgage holders were considered ‘At Risk’ between
July – September 2020.
It should be noted that the low rate of ‘At Risk’ mortgages during 2020 came during
the period of maximum support provided to the economy by the Federal Government as well
as measures taken by banks and financial institutions to support borrowers by giving borrowers in
financial distress mortgage ‘holidays’.
So basically during 2020, mortgage stress hasn’t been higher because of all these
stimulus actions by the Federal Government and banks to keep people from losing their
homes.
I mean this is great in that we don’t want people losing their houses, but consequently,
property prices have gone through the roof.
If nobody can default on their loans anymore, it’s a signal to the market that it’s
a free-for-all.
However, as the report points out, as we head into 2021 the financial support provided by
Governments, banks and financial institutions is being progressively withdrawn with mortgage
holidays ending and wage subsidy programs such as JobKeeper set to finish by the end
of next month.
The withdrawal of this support gives increased importance to tracking the level of mortgage
stress during 2021 as it can provide an early indicator of potential financial problems
approaching in the near future.
So basically, the end of JobKeeper will start to let the market play out (as it should),
and this could negatively affect people’s ability to repay their mortgage.
CEO at Roy Morgan, Michele Levine commented on the findings, “Many years of research
into mortgage stress has shown that the biggest driver of increased mortgage stress is the
reduction in income caused by the loss of a job which causes 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 four-fold increase in the likelihood of those
mortgage holders becoming ‘At Risk’ or ‘Extremely at Risk’.
The ending of the JobKeeper wage subsidy later next month will put added pressure on up to
1.5 million jobs that were relying on the payment in the December quarter 2020 according
to the Australian Treasury.
That is a huge pool of employees who potentially face a substantial drop in income over the
next few months that is set to lead to an increase in mortgage holders falling into
an at risk category.”
The ABC are reporting that “Australia's mortgage distress hotspot revealed as end
of JobKeeper scheme looms”.
Apparently the ABC’s 7.30 program was given exclusive information on the financial impact
of hard lockdowns on Australian households.
It shows that more than 80,000 Australians are still deferring their home loans.
Victoria has the highest percentage of mortgage deferrals still outstanding.
Some businesses and homeowners are worried they are being left behind as the economy
recovers.
CEO of the Australian Banking Association Anna Bligh stated that, “There’s no sugar-coating
this.
Come March and April, there are going to be businesses that are going to face some really
tough decisions.
And there are going to be homeowners, tragically, making some hard calls”.
I guess that is code for, “they might have to sell”.
EY Oceania Chief Economist Jo Masters also commented, “We have cushioned the blow but
we can’t survive on these life-support-type policies like JobKeeper forever.
Ending JobKeeper — whilst that will be very difficult for many, and it’s really important
that we support people through that restructure — is the right policy, partly because it’s
hiding those zombie firms.
It’s keeping alive all Australian businesses from the pre-COVID economy that we had.
We’re not seeing the economic scarring that we would typically see in a recession.”
Stamp duty is potentially on the way out.
“Shaking up stamp duty.
The NSW government wants to make home ownership more achievable by giving buyers the option
to pay an annual property tax instead of stamp duty”.
“The losers — and surprising winners — from phasing out stamp duty.
Swapping stamp duty for land tax as the ACT government is doing (over 20 years) and the
NSW government is planning (using an opt-in arrangement), is one of the best ways the
tax system can help”.
So basically, instead of paying a one-off tax on property purchases, state governments
are now thinking of implementing an annual property tax which would be based on land
value, similar to council rates.
But of course, any tax reform has pros and cons.
According to the ABC’s article, “Stamp duty discourages people and businesses from
changing addresses as often as they should, meaning workers live further away from their
work than they would and are reluctant to move to where there is better work.
Whereas land tax makes sure land is used for its most useful purpose and not left idle.
Efficiency-wise, it makes sense to swap one for the other, but as with all changes, there
will be winners and losers, some of them surprising.”
A study published in January titled, “Stamping out Stamp Duty: Property or Consumption Taxes?”
found that in general, swapping out stamp duty for land tax should reduce the purchase
price for home buyers, increase the sale price for sellers, increase the total number of
transactions, and reduce the degree of mismatch in housing.
It should also increase the rate of home ownership.
Young adults would be better off.
Current homeowners would generally be worse off.
Older landlords would also benefit.
In many cases, the increase in the value of their houses would outweigh the cost of the
land tax.
And finally they said, “Our findings raise a challenge for governments.
In the long run, the swap would improve the working of the economy, but in the short run,
it will hurt many current voters”.
And that’s a big point.
If many current voters don’t like it, then it’s going to be a hard change to implement
across the board, even though all things considered, it would benefit Australians more than it
wouldn’t.
Anyway, as of next month, JobKeeper is on the way out, so we’ll soon see how this
will affect the property market.
Hopefully there’ll be some good news from my perspective (that is, cheaper housing).