Mortgage Defaults – It’s going to be okay

At the coalface, the property market has all but bounced back from Pre-COVID levels and we will soon start seeing the results in the coming months after settlements have taken place (albeit it is too soon to tell in VIC, given recent increased restrictions). In some cases, we are seeing property values higher than before due to a run on the market caused by limited supply. 

On the other side of it, the pandemic seems to have had the opposite effect on rental values, which are seeing large declines in most markets due to a tipping of the scales for supply and demand. Part of the reason for this has been the decrease in tourism numbers and decline in student numbers around universities. 

So, for many this means that although your property is now worth a similar amount to before, your rents are reduced and this is just making it even harder to hold on. 

Due to this it’s likely that you will need to start thinking about selling your property, and the good news here is that there’s limited stock on the market and in most cases, now is as good a time as any. 

In fact, in certain markets, we expect to see an increase in supply of property for sale due to financial circumstances, which would typically be areas laden with investors, popular holiday spots and/or oversupplied markets.

I guess the question you need to ask yourself is, is now the time to make the call? 

So, what is the good news?

On Wednesday, the Australian Banking Association announced further easing on mortgages for those genuinely affected by the pandemic. While it was made clear that borrowers who have capacity to repay won’t be given more time to defer payments, those that are in serious financial stress will have more time to ‘work it out’. 

So, here’s the thing, D day has moved. If you thought you might hold off buying to get a great deal on a mortgagee in possession toward the end of the year, you may have to wait longer which means you will be paying more due to increasing values. You are also more likely to miss out due to the additional support put in place by financial institutions, given that the added time allows those in distress the chance to find alternative sources of income to avoid the need to sell. 

Rather than a flood of distressed sales, think of it more as a trickle that you and 10,000 others are chasing in a market where prices have already moved upward in. 

This says competition to me, which always means more money. According to the Australian Bureau of Statistics Lending Indicators report in May 2020, new mortgage commitments for owner occupiers and investors declined 10.2% and 15.6% respectively for a blended rate of -11.6%. 

While this may seem significant, we need to keep in mind that many banks have had serious delays in their turnaround times for approvals and in the same market we’ve seen listing levels decline by as much as 50% coming off an already low base. 

While a decline isn’t a good thing, in many cases there are even more buyers per property today than there were before the pandemic which is why we’re now seeing a lot of positivity and increased clearance in residential markets. 

So now it is up to you - get your timing right and you’ll do well because as long as listing levels remain low, we’re in for a good ride.

*The comments in this article are general in nature, seek independent advice for your personal situation.