A third of investor loans still deferred as rental markets struggle

One in three investor loans remains in deep freeze, underscoring problems in Australia’s housing market likely to emerge in 2021.

Auctioneer Chris Scerri sells a property in Roseville, on Sydney’s north shore, as house prices rise around Australia. Picture: David Swift

One in three investor loans remains in deep freeze, underscoring problems in Australia’s housing market likely to emerge in 2021.

Smaller banks are bearing the biggest burden from deferred investor loans, with Regional Australia Bank struggling with 86 of its investor loans in forbearance, according to APRA data.

Even Westpac, NAB and CBA are among the 10 worst affected banks. Deferred investor loans at CBA have grown slightly over the course of the pandemic and are locked at 34 per cent.

That figure is at odds with CBA’s broader housing exposure, where only 3 per cent of mortgages remained deferred. CBA added or extended another 4147 investor loans in October.

Rental markets have faced plummeting demand, as demand from international students has dried up.

The Reserve Bank’s September bulletin noted the hit to rents had been so huge it had driven the first quarterly falls in rents in the consumer price index.

“In the wake of the pandemic, the rental market has experienced shocks to demand and supply,” the bulletin states.

“Weak labour market conditions, including the temporary closure of many service businesses, have reduced demand for rental properties.”

The broader housing recovery is proving mixed, with AMP remaining the worst affected bank for non-paying borrowers.

At least 16 per cent of investors were non-paying in October, a figure unchanged since July when deferrals across the broader market were at their worst.

Almost 6 per cent of mortgage holders at the bank remained deferred, despite recent improvements in the market that have seen deferred loans fall from 900,000 in June to 285,000 in October.

Total loans deferred across the banking sector totalled $87.6bn in October. As many as 3871 mortgage holders at AMP continue to have their loans deferred, with only 318 mortgages returning to repayments in October. That came as 218 borrowers at the bank deferred or extended their deferrals. But house prices are on the rise, with a 3.1 per cent increase in prices since the start of the year.

Analysts warn of a tale of two housing markets in 2021, with world-leading price rises in Australia coupled with an increase in mortgage defaults.

Fitch Ratings projects 3-5 per cent growth across the Australian housing market in 2021, “even as economic growth accelerates and unemployment rates decline, partly reflecting the withdrawal of forbearance measures that helped to constrain the increase in arrears in 2020”.

“We consider self-employed borrowers as more vulnerable to arrears,” Fitch said. “However, those most affected by the economic crisis, namely individuals working under temporary contracts or within the retail and leisure services sectors, are also less likely to be mortgage borrowers.”

October lending indicators from the Australian Bureau of Statistics found investors only accounted for 5.29 per cent of borrowers, well down on the peak in 2018 but a slight increase from rock bottom in January 2019.

CBA announced in November it would freeze forced sales for customers who defaulted on their loans due to the pandemic until September 2021.