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How will the end of mortgage deferrals affect the housing boom?

mortgage deferrals

Australia’s red-hot property market has enjoyed extraordinary support from the federal government’s economic stimuli, wage subsidies and leniency in lending policy from the banks.

A key question now is how the market will adjust as this COVID-19 induced emergency support is wound back.

At the height of the worst peace-time recession in a century last year, banks pulled out all stops to avoid a meltdown in the asset that dominates their loan books: residential property.

Home loan and small business customers were given an option of putting their loan repayments on hold, and hundreds of thousands took up the offer. At the peak, banks allowed some $250 billion in small business loans and home loans to be put on hold.

These deferrals officially ended at the end of March and banks say the vast majority of affected customers have returned to making mortgage repayments. However, a small minority are still struggling – some may need to eventually sell their properties.

Commonwealth Bank provides a case in point. It says the overwhelming majority of people who deferred have returned to making repayments or restructured their loans. About 1.9 per cent are working with teams that help sell properties.

The bank has a moratorium on forced sales by owner-occupiers until September.

CBA retail banking group executive Angus Sullivan expects the end of deferrals would have a “very, very marginal” impact on the supply of homes for sale, as it would probably be overpowered by the stimulatory impact of ultra-low interest rates.

“I think the driver of the housing market, first and foremost, is probably low rates,” Sullivan says.

CBA’s rivals have experienced similar trends. National Australia Bank had 1037 deferred home loans at the end of February after allowing about 110,000 people to pause repayments last year.

“Given the significant number of customers who have returned to making repayments and additional support available, we don’t expect the end of deferrals to have a material impact on the housing market,” says NAB’s group executive for personal banking Rachel Slade.

Westpac has about 2000 loans in deferral – a tiny proportion of its mortgage book, while official figures last week showed ANZ Bank had 0.9 per cent of its housing loans in deferral at the end of February.

However, the end of mortgage deferrals could still weigh on some parts of the property market.

CoreLogic research director Tim Lawless says the risk from deferred loans has “significantly diminished,” though parts of the market dominated by investors could still feel the impact of deferrals ending.

Banks have not said where most of the remaining deferred loans are located, but Lawless says they are probably concentrated among investors, particularly in inner-city Sydney and Melbourne apartment developments. He believes banks would start being less patient with struggling property investors.

“Just reading between the lines, it seems like there will probably be less flexibility for investors,” he says. “It’s a net negative for the housing market but I think the impact will be quite localised.”

Like the banks, Lawless believes the broader property market has enough momentum to offset the impact of loan deferrals ending, but he does not think the pace of price growth can continue for much longer.

It is clearly not sustainable for Australia to continue notching up the fastest growth in house prices since the 1980s at a time when household incomes are not rising. It will simply get too expensive for buyers to keep bidding up prices.

The end of JobKeeper and other government schemes, including building grant program HomeBuilder, are also likely to temper the red-hot demand for housing in the months ahead.

 

Article Source: www.brisbanetimes.com.au

Finance

RBA unlikely to advance interest rate moves after lower than expected inflation figures

RBA

The consumer price index (CPI) came in materially lower than what was forecasted across markets

Australia’s inflation, a key metric in the RBA’s future interest rate calls, rose 0.6 per cent over the March quarter, according to data released by the ABS.

The consumer price index (CPI) came in materially lower than what was forecasted across markets and broadly in line with the RBA’s below market expectation.

Westpac was forecasting a one per cent lift in the CPI, with AMP Capital forecasting a 0.9 per cent rise.

The RBA say they will not increase the cash rate until actual inflation is sustainably within the two to three per cent range.

RBA

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For this to occur, wages growth will have to be materially higher than it is currently, which will require significant gains in employment and a return to a tight labour market, the RBA noted at its April board meeting.

The latest results will unlikely change the RBA’s thinking that rates won’t move until 2024 at the earliest.

CPI was 1.1 per cent up annually, compared to the forecasted 1.4 per cent.

New dwelling prices declined 0.1 per cent over the quarter, namely due to the impact of the Federal Government’s HomeBuilder grant and similar grants by Western Australian and Tasmania state governments.

“Without the offset from these grants, the price of new dwelling would have risen, reflecting increases in materials and labour prices in response to strong demand”, head of prices statistics at the ABS Michelle Marquardt said.

 

Article Source: www.urban.com.au

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Finance

New low as Homestar Finance cuts its two-year fixed owner-occupier rate to 1.74%

Homestar

Homestar is equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Homestar Finance is offering the lowest two-year fixed rate in the home loan market.

Homestar Finance has cut its two-year fixed owner-occupier rate by 14 basis points to 1.74%.

The rate cut move knocks Westpac from the top spot after it offered the lowest rate.

The increased rate competition was dubbed a “raging rate war” by the Mortgage Professional Australia website.

“This loan is the lowest two-year fixed rate on the market and also the lowest overall home loan rate available nationally,” RateCity research director Sally Tindall told The Australian.

“It also has one of the most competitive revert rates at 2.24%.”

Some 450 fixed mortgage rates have been cut over the last two months.

Homestar is also equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Greater Bank has the lowest fixed rate in the market, with its one-year fixed rate sitting at 1.69%, with the rate only available to customers in New South Wales, Queensland and the Australian Capital Territory.

 

Article Source: www.urban.com.au

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Finance

Warnings over proposed overhaul of responsible mortgage lending

mortgage lending

Record high mortgage lending to owner-occupiers, surging property prices and lenders offering low deposit mortgages could make for a perfect storm if the government’s attempt to repeal responsible lending obligations is successful, critics warn.

They say loosening responsible lending obligations would add fuel to the already hot property market and increase indebtedness, leaving home owners struggling to meet repayments if interest rates were to rise.

Figures from the Australian Bureau of Statistics for January show a 52 per cent increase in the value of new home lending to owner-occupiers compared to January 2020.

The government says repeal of responsible lending obligations is needed to free up credit, particularly to small and medium-sized businesses, and to remove red tape for lenders and borrowers. It says the protections for vulnerable customers are preserved.

The responsible lending obligations have been a bulwark of consumer protections since coming into effect in 2009. They require lenders to make credit assessments and approvals in accordance with the obligations and help ensure people are not being sold into unaffordable loans.

The government decided to pursue repeal of the obligations last year, during the depths of the COVID-19, after consultations with banks, as a way to get credit flowing through the economy again.

But with the economy staging a V-shaped recovery, house prices booming and mortgage lending for owner-occupiers at record levels, critics, including researchers, many consumer rights groups and some economists, say the responsible lending obligations are needed more than ever.

“It’s crazy to think the government is still pushing ahead with the scaling back of responsible lending obligations at a time when the property market is going through the roof,” says Sally Tindall, the research director at RateCity.

 

Article Source: www.brisbanetimes.com.au

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