In an attempt to offset the financial hardship suffered by thousands of Australians due to the Covid-19 pandemic, the government has put in place a suite of measures to help households having difficulty in making ends meet. One of these initiatives is the mortgage deferral scheme. This enables mortgage holders to defer payments on their loan for six months until their financial situation improves, or potentially extend the deferral for a further four months.
The incidence of individuals requesting a mortgage deferral in an area can tell us a lot about the financial situation there, which may provide opportunities for investors. Here we look at where mortgage deferrals are highest, as well as consider what implications this has for purchasing an investment property.
Surfers Paradise, Gold Coast, Queensland
Where are mortgage deferrals highest?
Recent information from Equifax shows that out of the ten areas that have the highest rate of mortgage deferral, nine are coastal resorts in Queensland. The most likely explanation for this is that these areas are heavily dependent on the tourist trade to generate income.
With national and international movement severely curtailed by pandemic restrictions and the Queensland government closing the borders, the number of tourists visiting coastal resorts is negligible. Inevitably, this has many people with a home loan struggling to stick to their regular mortgage repayment schedule, as their businesses have been curtailed by the pandemic.
Queensland areas in the top ten mortgage deferral areas include:
Whitsundays
Noosa
Surfers Paradise
Coolangatta
Burleigh
Southport and the Gold Coast hinterland.
Melbourne suburbs also under mortgage stress
Although the only area to make the top ten locations that are experiencing the greatest mortgage deferral numbers, it's clear that a number of the outer suburbs are under a considerable degree of mortgage stress. Tullamarine-Broadmeadows is the Melbourne suburb that Equifax lists as the area with the ninth most mortgage deferrals, but nearby locations aren't far behind.
Commentators suggest this is due to both demographics and the local economy. Younger people tend to live in many of the outer suburbs: traditionally they have less income, and may also have lower amounts of savings to fall back on. Younger people are also disproportionately represented in sectors characterised by job insecurity. This makes them vulnerable to redundancy, as well as frequently working on zero-hour contracts, or in temporary employment. All these variables make servicing a mortgage challenging, particularly at the current time.
If you need additional information about mortgage referrals, visit the Australian Banking Association Covid-19 bank relief FAQs
What does this mean for property investors?
There is little doubt that the economy in these areas will start to thrive again once national borders reopen and international travel returns. Unfortunately, this may be too late for many mortgage holders, who will be forced to sell up. An excess of properties on the market in a short period of time could mean prices stagnate, presenting an attractive opportunity for a property investor to snap up a bargain.
As we start to see a migration from heavily restricted states like Victoria relocate to the north/east of Australia where life has begun to return to normal, property demand will start to increase in 2021. This increase in movement will assist investors to find tenants while the international immigration and student travel is on hold.
Once the economy begins to thrive again in the next few years, properties in these lifestyle locations should increase in value, delivering a significant return on investment.