COVID-19 and Mortgage Stress

The COVID-19 pandemic has left more Australians facing unemployment and mortgage stress.

What does the year to come hold and how can you get help if you need it?

The COVID-19 pandemic has plunged Australia into its first recession in 30 years and caused a surge in unemployment. With mortgage holidays from lenders set to end and the JobKeeper subsidy being wound back – at least for now – what does the rest of 2020 hold for homeowners who have been financially affected by COVID-19?

What is mortgage stress?

Mortgage stress happens when your mortgage repayments are higher than you can reasonably afford on your current income so that other areas of your financial life are affected. A general rule of thumb is that it tends to kick in when your mortgage payments comprise 30% or more of your pre-tax household income.

Even pre-Covid, mortgage stress in Australia was at its highest levels in two decades, particularly for lower-income homebuyers, according to the Australian Housing and Urban Research Institute (AHUEI). Research by AHUEI into mortgage stress also revealed that in 2007–08 (during the Global Financial Crisis or GFC), 60.7 percent of lower-income homeowners who had bought in the previous three years had mortgage payments of 30 per cent or greater of household income - up from 38.5% in 1981–82.

Mortgage stress is not only a problem for low or even middle-income households. We have written previously about “affluent stress”. Given that the more you borrow, the more likely you are to experience mortgage stress, it’s not surprising that it can hit those in well-off areas too.

One recent look at Australian hotspots for mortgage stress found that some areas in Sydney’s eastern suburbs were among them. In fact, Rose Bay was highlighted as a “red zone” according to the data from Digital Finance Analytics.

So how worried should we be?

How is COVID-19 affecting mortgage stress?

While mortgage stress is not a new issue in Australia, the impact of COVID-19 may be taking it to new heights, thanks to rapidly rising unemployment and the nation having officially entered a pandemic-induced recession.

According to AHURI, more than 1.4 million Australian households are now in mortgage stress and, some estimates suggest that as many as 100,000 households could default on their home loans once JobKeeper payments end.

The future of JobKeeper

For many Australian workers and businesses, the financial impact of the pandemic has to date been cushioned by the JobKeeper payments. Although these payments have been extended for six months, they are being gradually reduced from the end of September and eligibility is being tightened.

Treasury projections suggest that between now and the end of the year, 2.1 million Australians will be taken off the JobKeeper payment.

According to The Guardian, the industries most affected by job losses are hospitality, the arts, retail and transport. Younger people and casual workers have been disproportionately affected.

As Census data shows around 70% of Eastern Suburbs residents work as professionals, managers or in clerical and administrative or community and personal service roles, we can assume that our area has, thankfully, been less directly impacted by these job losses than some.

Mortgage holidays coming to an end

When COVID-19 first hit, lenders gave many borrowers the opportunity to defer mortgage repayments for up to six months.

One in 14 mortgage holders, or nearly half a million Australia households have taken up these deferrals, showing just how many may be vulnerable to mortgage stress.

What does the future hold for the property market?

So far, the COVID-19 impact on the property market has been very different to what we saw during the Global Financial Crisis (GFC). If Australia continues its current trajectory of success in containing the virus – with the lockdown in Victoria coming to an end – we may indeed be the lucky country, in terms of seeing a faster recovery than many other nations.

However, at no time in recent history has it been more difficult to accurately forecast what the future holds.

What is likely, however, is that a significant percentage of homeowners across the country will need to sell and return to renting, potentially buying again when the economy recovers. If this means there is more stock on the market and fewer buyers, it could impact property prices. However, with low-interest rates and softer prices, we could also see more investors return to the market.

What help is available?

As we’ve mentioned above, JobSeeker, JobKeeper and mortgage holidays are still available. NSW has also entered into the Pandemic Leave Disaster Payment scheme.

But these measures alone are unlikely to cover the cost of an Eastern Suburbs mortgage.

If you’re suffering financially as a result of COVID-19 the most important thing you can do is communicate with your lender and work out what options you have.

There are steps you can take before you consider selling. The Australian Banking Association is working with banking institutions to find ways to support consumers through this crisis. Find out what options are available here.

If you are forced to sell, perhaps the one silver lining is that property prices have held up reasonably well so far during the pandemic, so you may receive a good price for your home.

Want more?

If you’re thinking about buying or selling property in the eastern suburbs, don’t hesitate to get in touch with our team today.

Download our 2018/2019
Eastern Suburbs Market Report

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