The pre-election tax cuts promised by both major parties will be welcomed by tens of thousands of households caught up in what seems to be a worsening national housing crisis.
- Analysts say mortgage defaults are rising at a concerning rate and will continue to do so
- More than a million home owners struggled with some mortgage stress in March
- The problem is worse in regional Australia where higher levels of mortgage arrears are being experienced
Researchers have said nationwide mortgage defaults are the highest they have been in almost two decades.
A spokesperson from peak housing and homelessness body National Shelter, an organisation at the front line of housing stress, said too many Australians have hit rock bottom.
“We think we have a housing crisis that is at a high point,” executive director Adrian Pisarski said. “We’ve never seen it as bad as it is.
“We know that homelessness keeps rising, that rental affordability is absolutely outrageous, that people struggle to find enough money to meet their housing costs in a whole range of income brackets.
“It’s not something that just affects the lowest incomes, although they are affected the worst.”
Mr Pisarski’s comments are backed up by independent research from data crunching firm, Digital Finance Analytics (DFA).
Its survey data shows a record number of Australian households — more than a million, which is one-third of all home owners with a loan — struggled with some degree of mortgage stress in March.
Mr Pisarski said policy makers need to watch the levels of mortgage defaults closely. (ABC News: Patrick Stone)
Mortgage default risk highest in two decades
Perhaps more concerning though is that DFA estimates roughly 66,700 households are currently at risk of defaulting on their mortgage. That is the highest level in almost two decades.
The firm’s founder Martin North also said the defaults are rising each month at a concerning rate.
“We shouldn’t be seeing mortgage stress rising, and we shouldn’t be seeing risk of default rising,” he said.
“And we shouldn’t be seeing the ratings agency reporting high levels of default.”
International ratings agency Moody’s recently revealed Australia’s mortgage delinquency rate was at its highest level in at least five years, with 1.58 per cent of people at least 30 days behind on their mortgage repayments late last year.
In New South Wales the delinquency rate is also at its highest level in five years, although the state’s delinquency rate is still lower than anywhere else except the ACT.
Mortgage delinquencies have also increased in all other states and territories except Queensland.
Towns and cities suffering the steepest house price falls are experiencing the worst of it, with regional Australia posting much higher levels of mortgage arrears than the capital city in their state or territory.
“In a declining housing market, the borrower’s option of being easily able to sell their property at a good price is reduced,” Moody’s vice-president Alena Chen said.
Moody’s expects the mortgage delinquency rate to keep rising this year because of high debt levels, low wage growth and the conversion of many interest-only loans to principal and interest this year and next.
But it expects mortgage delinquencies to remain low overall, given the current rate of economic growth and low unemployment.
Analysts expect defaults to increase
The ABC has sought comment from Australia’s two biggest home lenders — the Commonwealth Bank and Westpac.
A spokesperson for Westpac said missing a mortgage repayment over a 30-day period is not a strong indication of what is happening in the economy.
“People can inadvertently miss a payment or there may be an event such as the North Queensland floods that impacts a community,” the spokesperson said.
“That’s why banks and mainstream banking analysts use 90 days in arrears, and on that measure mortgage performance continues to be very strong.”
Analyst Martin North, however, is sticking by his research.
“The 30-day default is a very important indicator because it does go directly back to household cash flow,” he said.
“The thing I’m a little frustrated about is that many of the banks are recognising the cash flow pressures that households are under at the moment.”
Mr North is not the only analyst who has sounded the alarm bell on rising mortgage defaults and delinquencies.
Senior banking analyst with Shaw and Partners, Brett Le Mesurier, told PM he was most concerned about the impact of falling house prices on mortgage stress.
“I do expect [defaults] to increase further,” he said.
“The question is how much higher do they go and how long does it last? It wouldn’t surprise me if delinquencies continue to rise for the next year or two.”
Mr Pisarski warned policy makers should keep a close eye on rising mortgage defaults.
“So the worry is that, when we look forward, more people get into this situation, get into debt, can’t get out of it, have to be foreclosed,” he said.
“It is just a worrying trend.”