Arrears on the rise as mortgage deferral comes to an end. Image : Pexels
  • The end of March marks the end of the government's mortgage relief
  • Borrowers are already feeling the effects with arrears on the rise
  • Economic recovery, good refinancing options and low interest rates are preventing too much pain

Many borrowers are beginning to struggle with mortgage as government stimulus and mortgage relief coming to an end, as reflected by the rise of Australian mortgage arrears.

According to Standard & Poor (S&P), while the level of mortgage arrears is trending upwards, economic recovery, good refinancing options and low interest rates are preventing too much sting.

The S&P’s Performance Index (SPIN) for Australian prime mortgages shows the arrears index increased to 1.37% in December 2020. This is up compared with 1.28% the same time a year ago.

Arrears related to the pandemic’s impacts are more likely  be revealed in the second quarter of this year. S&P says this is because of the approaching end date for the mortgage deferral periods this month.

Only 1.4% of total outstanding loans remained on the temporary deferral scheme at the end of January.

Refinancing options may be a saving grace for borrowers who are struggling to repay mortgages according to Standard & Poor.

“Strong property market performance will also help existing borrowers by enhancing their equity positions in their homes, improving their refinancing prospects. This is a common way to self-manage out of arrears.”

Standard & Poor

“Arrears increases have been more pronounced in inner-city areas, where rental income has contracted due to population shifts to the suburbs during COVID-19 and a decline in international migration. This could change as housing affordability pressures rise, workers return to the office and international migration resumes.

“Higher property prices often translate to higher leverage, because borrowers need to take on more debt to gain a foothold in the market. As house price growth outstrips wage growth, household-debt-to-income ratios will come under pressure. Lower interest rates will help to offset this, but the disconnect underlines the importance of prudent lending standards to ensure that debt can be serviced over the life of a loan and throughout different economic cycles.”



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