Mortgage strain starts before missed repayments, Australian economist warns

Cameron Kusher says households may sell before falling behind, as investor lending drops sharply and first-home buyers also retreat.

Channel: ABC News (Australia) ·

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Property market hit by high interest rates and tax changes pushes investors out | The Business

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0:31New lending value records its largest quarterly fall, with investor lending declining at twice the overall rate.
1:23Interest rate rises reduce borrowing capacity, adding to the housing market's retreat.
2:04Kusher says investor uncertainty and the higher cost of new properties complicate investment decisions.
3:06Weaker housing activity poses risks to future supply, government building targets and the rental market.
4:43Mortgage arrears have edged up, but Kusher says household financial pressure begins before repayments are missed.

Keeping up with mortgage repayments does not mean a household is coping comfortably. Property economist Cameron Kusher says some Australian borrowers are trying to leave their mortgages before financial pressure turns into overdue payments.

Speaking on The Business, from Australia's Australian Broadcasting Corporation (ABC), Kusher describes a housing downturn shaped by higher interest rates, reduced borrowing capacity and uncertainty over budget changes to property taxes.

The report says Commonwealth Bank recorded a slight increase in home loans overdue by at least three months in the September quarter. That has not yet translated into loan losses, but the bank is setting aside money against potential losses.

Kusher does not expect a further increase in the proportion of borrowers behind on payments. His warning is that arrears reveal only part of the strain: households can cut spending or sell before they miss a payment. He points to five interest rate rises this year and the possibility of more.

The lending slowdown is already substantial. According to the Australian Bureau of Statistics figures discussed in the interview, the overall value of new home lending suffered its largest quarterly fall on record. Investor lending dropped by roughly 31%, about twice the overall market's rate of decline.

"I didn't think that we would see a pullback this significant," Kusher says. First-home buyers have also pulled back more sharply than other owner-occupiers, he adds, with falling prices contributing to uncertainty rather than simply encouraging purchases.

The discussion follows May budget changes affecting negative gearing and the capital gains tax discount. Negative gearing allows eligible investment losses to be offset against other taxable income; the interview does not set out the detailed changes.

Kusher also identifies a risk beyond today's sales figures: weaker investment could affect future housing supply and put pressure on the rental market. New properties generally cost more than established ones, he notes, making the economics of buying a newly built investment property another obstacle for hesitant investors.

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