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

Australia’s property market is booming thanks in large part to support from COVID-related government stimulus programs and mortgage repayment deferrals from banks. But how will the market fare as these programs are wound down?

At the height of the COVID-19 recession last year, banks offered home loan and small business customers the option of putting loan repayments on hold. At the peak, $250 billion in home mortgages and small business loans were deferred, according to a report by The Sydney Morning Herald.

Those repayment holidays officially expired at the end of March. According to the banks, most customers who took deferrals have returned to making repayments. However, a small number are still struggling to catch up, and some may be forced to sell their properties.

Commonwealth Bank told the Herald that the vast majority of deferral customers have returned to making repayments or have restructured their loans. However, about 1.9% are looking to sell their properties. The bank isn’t forcing the sales – it has a moratorium on forced sales by owner-occupiers until September.

Angus Sullivan, CBA retail banking group executive, said he thought the end of mortgage deferrals would have a “very, very marginal” impact on the supply of homes for sale, with the impact mitigated by the stimulating effect of ultra-low interest rates.

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

National Australia Bank allowed about 110,000 customers to defer loan repayments last year. At the end of February, only about 1,037 home loans were still deferred.

Read more: CBA urges distressed property investors to sell

“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,” Rachel Slade, NAB group executive for personal banking, told the Herald.

The number of remaining deferrals for Westpac and ANZ is also miniscule.

However, the expiration of deferrals could still impact some parts of the property market, according to CoreLogic.

CoreLogic research director Tim Lawless told the Herald that parts of the market dominated by investors could feel the sting of deferrals ending. While banks haven’t said where most of the remaining deferred loans are located, Lawless said they were probably concentrated among investors – especially in inner-city Sydney and Melbourne apartment developments. He said banks would likely be less patient with investors than owner-occupiers.

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

Lawless agreed with the banks that the broader property market has enough momentum to stifle the effect of deferrals ending. However, he didn’t think the current pace of price growth could continue much longer, the Herald reported.

Ryan SmithRyan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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