How Australia is Handling Mortgages During COVID-19

2 Mins read

All over the world, people are struggling to manage the financial impact of the COVID-19 pandemic. The United States economy has been shut down multiple times across the states, causing tens of thousands of business owners to shut their doors for good. Millions have been unemployed for months, and it’s not just a problem in the U.S—Australia is struggling, too.

Australia is experiencing a mortgage crisis

Just as in the U.S., the pandemic-induced recession in Australia has already affected millions of homeowners, with more than 1.4 million people stressing over mortgage payments. Nearly 100,000 homeowners are about to default on their mortgages. 

Many homeowners who aren’t that far behind are looking into refinancing their mortgage to lower their monthly payments and overall loan amount. However, those already going into foreclosure won’t get the chance to refinance.

Australia has seen recessions before, but the last one happened 29 years ago. Although, the Federal Treasurer, Josh Frydenberg, says this current recession could have been much worse. According to ABC News, while GDP fell by 2.4% in the March quarter, the Australian economy only contracted by 0.3%. Still, the recession is taking a toll on homeowners across the country.

The Treasury is funding business payroll expenses

To mitigate the economic damage, the Australian government launched the JobKeeper program to provide qualified businesses with funds to keep their teams employed. The program has been extended through March 28, 2021, but officials say the labor market remains weak, and businesses will need ongoing financial support.

Property investors are selling their real estate

It’s not just residential tenants who are struggling to pay their mortgages. Since business owners are struggling to pay their rent, commercial landlords are also struggling to pay their mortgages. Some property investors can cover their mortgages from other sources of income, but the loss of income has been huge. 

As a result of lost income, many commercial property investors are thinking about selling their properties. The end of the pandemic is still uncertain, and some investors will have no choice but to sell now and buy again later.

Investors who have the funds to wait out the pandemic will end up with serious losses that could be anywhere from a few months of rent to another year. Since nobody can predict when the pandemic will end, it’s impossible to estimate how long the devastating financial impact will last. That’s why some investors are choosing to sell their properties now and buy later—they don’t want to risk a long-term loss that can’t be recovered easily.

Banks are offering loan deferrals

To help businesses stay afloat during the recession, many banks are providing loan payment deferrals for up to six months. Although the banks still need to charge interest on deferred loans, they won’t require borrowers to repay the entire amount of capitalized interest when their deferral period is over. Instead, banks are extending the length of loans and increasing monthly payment amounts.

Even if people can’t get a deferral directly for their mortgage, they can get a deferral for other loans. When other loans are deferred, they can put that money toward their mortgage. 

Banks are working personally with their customers

Data published by the Australian Banking Association indicates that the total number of deferred home loans has shrunk by 65% between June 24, 2020 and November 4, 2020. Since a growing number of homeowners are on the brink of foreclosure, it’s not clear whether the drastic decline in deferred loans is the result of recategorizing loans due to foreclosure.

Despite help, foreclosures are inevitable

Even with deferrals, monetary assistance, and other programs, foreclosures are inevitable. Many Australians simply can’t make it out of the recession without losing their homes.

The Australian government and local organizations can only do so much to help businesses and homeowners pay their mortgages. Hopefully, the pandemic will be over soon, and Australia can start rebuilding a strong economy.

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