Mortgage Pauses are Ending. What Does That Mean?

mortgage pauses are ending

When the pandemic moved its way into Australia it was a worrying time for everybody. The whole country has united, across all sectors, to not only fight the virus but also to ensure our economy doesn’t fall off a cliff. We’ve navigated the worst part it seems, but there are still a few hurdles to cross.

One of the measures implemented in the real estate sector was banks and lenders offered borrowers the option to pause their mortgages.

What did this entail?

Designed to assist people who were negatively impacted in a financial way by the pandemic, borrowers could defer their mortgage payments for six months. This means they wouldn’t have to pay back their monthly premiums during those six months. But the interest would still accrue, meaning their total loan size would still increase, meaning higher repayments once the deferment period was finished.

The threat of slightly higher repayments didn’t deter nearly 500,000 Australian who deferred their mortgages. For many it was a saving grace, as their businesses slowed and their earning capacity diminished. They were able to keep their heads above water and focus on their own and their family’s health during a tricky time.

For many borrowers now though, the six months is drawing to a close. Unfortunately, the economic fallout from Covid-19 isn’t. Unemployment is high, the treasurer has admitted we’re in a recession and many industries are really struggling to get back on their feet.

So what does the resumption of deferred mortgage payments mean for real estate? Will there be a mass sell-off as people realise they can’t afford their mortgages? Will the market be flooded and prices drop?

Our advice is not to panic. A survey by RateCity indicated that 70% of people on mortgage deferral plans believe they’ll be able to meet their repayments once they start up. That leaves 30% of borrowers who will struggle to resume repayments. We don’t believe the banks will leave this sector of society high and dry.  It’s in their interests to keep them in their houses and their mortgages active.

Martin North of Digital Finance Analytics said of banks, “They are not in any hurry to foreclose on people because that means they have to declare bad loans and that means they have to hold more capital. So they will try to do anything they can to allow people to keep their homes.”

Banks will work with their borrowers to get through this. We don’t think there’s going to be a massive cliff that real estate prices fall off because deferrals end. Bargain hunters might not get that amazing deal on property they were hoping for, which is great for sellers and for the stability of our economy.

As always, if you’re thinking of selling, you need to do it at a time that’s right for you and your circumstances. It definitely pays to be aware of the context you’re selling in, so if you want to chat more about the real estate market in Brisbane and how it’s been affected, please get in touch with the Henry Wong Team®. We’re here to help and would love to answer your questions!