What Will Happen When The Mortgage Freeze Is Over?

What impact will the end of the mortgage freeze have on the eastern suburbs property market?

We take a look.

When the pandemic hit our shores in March 2020, the banks acted quickly to make sure people didn’t default in massive numbers and send the property market (and their loan books) crashing. One way they did this was to offer people facing financial hardship the opportunity to defer their home loans for up to six months.

This mortgage freeze - or mortgage pause - was so popular that one in 11 Australian mortgage holders took up the offer. By August 2020, nine per cent of home loans, worth $160 billion, were still on pause, according to the ABC.

With the original six-month COVID loan deferrals now starting to expire, what impact will it have on the property market, especially here in Sydney’s eastern suburbs?

How the mortgage freeze works

As the name suggests, a mortgage freeze simply pauses mortgage repayments for a period of time - usually three-to-six months. While terms vary between lenders, borrowers usually had to prove their income had gone down by 20%.

During the pause or freeze, interest still accumulates and gets added to the balance of your home loan. So, while a freeze may give you some short-term financial breathing space, it will lead to more long-term debt. You’ll potentially end up having higher repayments once the repayment holiday is over, as well as a longer loan term.

How many Australians took a mortgage freeze?

Over half a million mortgages have been paused or frozen so far this year.

According to data from the Australian Banking Association (ABA), this equates to banks providing loan repayment deferrals to around one in 11 Australian mortgage holders.

Interestingly, the ABC reported that one in five people who paused or deferred their mortgage actually kept making repayments. The banks also gave relief to about one in eight small business owners.

By mid-October Australia’s largest seven banks were reporting that the number of deferred mortgages had dropped to 270,000. This means that almost half (or 45%) of deferred mortgages are now back to normal.

The ABA says more Australians resuming loan repayments is a good sign for the economy and shows that people are getting back on their feet. It could also be a sign that JobKeeper and JobSeeker payments have had a material impact when it came to helping people meet their expenses.

The end of the mortgage freeze

In June, the RBA predicted a price fall of 15% across the property market in a worst-case scenario. This hasn’t happened - yet - and we remain optimistic that it won’t if the pandemic in Australia continues to be well managed.

But as we head towards summer, the original mortgage deferrals are expiring. While some banks say they will offer a four-month extension, this is limited to cases of genuine, severe financial hardship.

Instead, lenders will push for other options such as extending the loan term to lower repayments or moving to interest-only loans.

The reality is that while banks are keen to keep owners in their homes, property owners who struggle to meet mortgage repayments may be pushed to sell. This is likely to particularly affect investors, given declining rents are making it more difficult for some to hold onto their properties.

How it will impact the eastern suburbs property market

That said, the Sydney property market is actually many markets and investors aren’t prevalent in every one of them. Where this may be most acute is in the apartment market that investors tend to buy into. But the flipside of this is that we’re seeing more first home buyers in this segment for the first time, increasing demand.

More broadly, a few people being forced to sell their homes shouldn’t make too much difference. It would take an avalanche of forced sales to really bring prices down.

That’s because since COVID-19 struck, low stock levels have been the defining feature of eastern suburbs real estate. There currently aren’t enough properties for the number of buyers out there. This has been keeping prices stable and it should continue to do so unless circumstances change dramatically.

What’s more, the RBA has signalled that the economy is starting to improve again, after two quarters of contracting. Hopefully, this is the sign of a broader recovery that should help the property market.

What to do if you need help

The statistics show that despite mortgage pauses, mortgage stress is on the rise. Research from Digital Finance Analytics reveals that 37.5% of homeowners were under financial pressure after the pandemic hit, compared to 32% before.

If you require help, the best course of action is always to speak to your lender sooner rather than later.

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.

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