Mortgage Deferrals to End This Month, Home Loan Arrears Rising

End of Mortgage Deferrals Salt Finance Mortdale

Mortgage deferrals to end this month, what will happen next?

Australia’s government’s program for mortgage-deferral periods is coming to an end this month. Analysts are seeing the potential of the increase of mortgage arrears number.

According to the data from the Standard & Poor’s (S&P) Performance Index, Australian prime mortgages increased to 1.37 percent in December last year, compared to 1.28 percent 12 months earlier. S&P analytical manager Kate Thomson said low-interest rates and a strong economic recovery were the triggers of the increasing number.

Thomson explained that the expiration of the mortgage-deferral periods will lead to an increase in home loan arrears, especially those of Covid-19 related, in the second quarter of 2021.

The data from S&P also showed that arrears increases have been more pronounced in inner-city areas where population shifts had impacted rental incomes, along with the lack of international tourism and migration.

Victoria’s Altona East has the dubious honour of being crowned the worst suburb for loan arrears, followed by Forrestfield and Byford in Western Australia. New South Wales followed closely with 32 percent, and Queensland comes in at third with 20 percent of the country’s Covid-19 mortgage deferrals.

Thomson said it was important that prudent lending standards were maintained to offset the risks associated with increasing household-debt-to-income ratio pressures where house price growth outstrips wage growth.

According to S&P data, these areas formerly had some of the lowest arrears in the residential mortgage-backed securities market – but analysts warn it may be more difficult for investors with inner-city locations to refinance their properties. Thomson said investors may sell off properties to offload debt.

The next question is, with the upcoming end of the Jobkeeper Payment as well, will it be okay for the Covid-19 related arrears? Should the Jobkeeper Payment program be extended in light of the expiration of the mortgage-deferral periods?

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