What happens if the so-called fiscal cliff does not exist? What happens if those who had a mortgage repayment holiday due to Covid-19 can actually recommence making loan repayments?
Given that Australia’s property market has held up pretty well, many economists are now softening their predictions on the property market; predicting modest falls due to the pandemic where once they were predicting double-digit falls.
One reason for this is Australians have been able to maintain their home loan repayments far better than anticipated.
This month, unemployment levels improved to 6.8 per cent when most economists forecast it would rise to 7.7 per cent.
The banking regulator, APRA, recently released data showing the volume and value of loans for each of the banks that had been allowed to temporarily defer repayments as at the end of June and the end of July.
The data at an aggregate level shows that between 6 per cent and 13 per cent of loans for each bank have some sort of repayment deferral applied at the end of July, with most of the banks at around 10 per cent.
ME customers with deferred loans are returning to making payments in droves with about three quarters paying in full with less than 5 per cent choosing to extend deferrals and around the same amount proving difficult to contact.
And many banks are finding that borrowers are electing to restart making repayments. For examples Westpac and Suncorp customers have significantly increased their repayments (see chart below)
Mortgages with Deferred Repayments as a percentage of All Mortgages
So, with only a handful struggling to make repayments and another handful not telling the banks what they are going to do, its hard to imagine a tsunami of sales where defaulting homeowners are forced to sell their homes.
As a result, property prices are likely to hold up Brisbane house prices are expected to surge 20 per cent over two years after the market bottoms out in mid-2021, while Sydney prices could climb 14 per cent,
But, until immigration returns to normal levels, its hard to see an overwhelming demand for property. If you have been priced out of the market until Covid-19 this could be your window of opportunity to buy at a good price.
Graeme Salt is a leader of the Futurus Group whose brands primarily comprise Origin Finance, Chan & Naylor Finance as well as Mortgage Broker Training
For a no-obligations, please contact him on 1300 30 67 67