Job Losses Due to Virus Crisis Increases Mortgage Stress

Job Losses Due to Virus Crisis Increases Mortgage Stress

SYDNEY, Australia – With the shutdown in place to help curb the spreading or the coronavirus, there is an increasing number of Australians losing their jobs, which adds to the already high mortgage stress.

With more people losing their employments and sources of income, they are now struggling to repay their loans and mortgages. S&P Global, a credit rating agency in the country, said that there is an increasing number of Australians that are now falling behind when it comes to their loan repayments.

Erin Kitson, an S&P analyst, said that they are currently expecting a rise in arrears, which could soar higher than seen during the global financial crisis in 2008. She noted that loan debts would also increase at a much higher rate than it did during the previous financial crisis. The primary reason is the wide-ranging impact in the economy right now due to the unexpected disturbance to the country’s economic activity.

During the global financial crisis, Australia was able to avoid mass defaults with home loan debts rising to as much as 1.68% after the GFC in 2008 from the 1.40% pre-crisis average.

Based on the latest data from the S&P Global, home loan debts were at 1.69% in January, which increased from the recorded rate in December at 1.28%.

While Ms Kitson can’t pinpoint how many Australian households will experience the effects of the arrears, she noted that many of those affected by the debts are going to be self-employed. She said that self-employed borrowers who are working in direct client-facing industries, especially those in leisure, tourism, and hospitality sectors, are at higher risk of the economic activity disruption.

However, Ms Kitson commented that the stimulus packages from the Federal Government and those form banks would provide a certain level of relief to limit the damages Australian households will experience during this crisis.

Meanwhile, the Government will declare another stimulus package, which is going to be the third one, within days to help fight the threat in the economy.

A lot of Australian banks also announced their coronavirus support packages recently, in hopes to provide options for borrowers for a 6-month delay in their loan repayment.

The Australian Prudential Regulation Authority also stated that there is no need for the bank to classify the six months as debt for borrowers who have been repaying their loans regularly until recently.

Another emergency measure made to help curb the effects of the ongoing crisis is the $90 billion in 0.25% funding for small business loans and the emergency interest rate cut.

According to Alan Oster, chief economist at National Australia Bank, all these measures available to Australian households and businesses will not stop the sharp increase of the unemployment rate in the country. He said the rise in the number of people losing their jobs could rise to as much as 12% by mid-2020.

Mr Oster said that the condition remains unstable. However, according to him, the 5% loss in the gross domestic product in other foreign countries may also happen in Australia. He said that despite the fiscal and monetary policy that will help ease the impact of the current crisis, these measures wouldn’t fully counter the short-term effects of the economic shock.

The significant adjustment made in the business and household balance sheets may also trigger a substantial crash in the country’s property prices and cause even slower recovery.

With the increasing rate of job losses in Australia, there will be a rise in household stress, which could pose an even more risk towards a drop in house prices and modification in housing construction.

Mr Oster said that the unemployment rate by the last quarter in 2021 could still mark as much as 7%, despite an expected substantial growth percentage in 2021. He said that it could also cause the GDP level by the end of 2021 to return to the same rate it had before the pandemic hit.

Martin North of Digital Finance Analytics commented that there are around 32% of Australians currently struggling with their mortgage repayments. He predicted that the country’s mortgage stress levels could increase to as much as 38% as the unemployment rate rises to 7% or more.

With this rate, there could be 250,000 more households expected to experience mortgage stress. That would be a significant addition to the number of Australians currently under anxiety over their home loan repayments, which is at 1.08 million.

According to Mr North, the current number could very well worsen moving forward. He said that it wouldn’t be a surprise if the number of Australian households under mortgage stress could soar to around 40% in the coming months. That rate translates to about 1.5 to 1.6 million Australians who couldn’t repay their home loans, Mr North commented.

He further stated that he is closely monitoring Western Australia’s delinquency rates for five years now. Based on his findings, the eastern states of the country could experience the same fate moving forward, with even more defaults.

Mr North said that he’s not saying there will be immediate default, but it is an early sign that there will be trouble ahead.

Meanwhile, on Tuesday, the chief executive of ANZ, Shayne Elliot, said that how banks handle its customers who are experiencing the effects of the virus crisis could mark major lenders’ redemption.

He said that banks would be judged, especially on what they are doing. Mr Elliot stated that it’s a real opportunity for the lenders to play their part in what is a very challenging time.

He agreed that while banks are responsible for some major decisions that could affect Australian households and businesses, there is a limit on what they can offer.

Based on RateCity, a loan comparison website, on Friday, mortgage interest rates had gone down to 2.09%, with some lenders increasing their new customers’ saving rates to as much as 2.65%.

According to Sally Tindall, the research director at RateCity, it’s challenging to see that the savings rates are higher compared to some fixed mortgage rates, even on a short-term period.

Mr North further stated that banks have to make some of the tough decisions as a community, as they have to look after their depositors as well as provide relief to ease mortgage stress for borrowers.

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