Risk of Mortgage Distress Down Under (JobKeeper and Stamp Duty on Its Way Out?)
Channel: Daily Insight
Date: 2021-02-11

Research conducted by Ray Morgan has found that ‘mortgage stress’ is already a danger for one-in-five mortgage holders as ‘loan holidays’ are set to end. It should be noted that the low rate of ‘At Risk’ mortgages during 2020 came during the period of maximum support provided to the economy by the Federal Government as well as measures taken by banks and financial institutions to support borrowers by giving borrowers in financial distress mortgage ‘holidays’. So basically during 2020, mortgage stress hasn’t been higher because of all these stimulus actions by the Federal Government and banks to keep people from losing their homes. I mean this is great in that we don’t want people losing their houses, but consequently, property prices have gone through the roof. If nobody can default on their loans anymore, it’s a signal to the market that it’s a free-for-all. However, as the report points out, as we head into 2021 the financial support provided by Governments, banks and financial institutions is being progressively withdrawn with mortgage holidays ending and wage subsidy programs such as JobKeeper set to finish by the end of next month. The withdrawal of this support gives increased importance to tracking the level of mortgage stress during 2021 as it can provide an early indicator of potential financial problems approaching in the near future. So basically, the end of JobKeeper will start to let the market play out (as it should), and this could negatively affect people’s ability to repay their mortgage. Stamp duty is potentially on the way out. “Shaking up stamp duty. The NSW government wants to make home ownership more achievable by giving buyers the option to pay an annual property tax instead of stamp duty”. “The losers — and surprising winners — from phasing out stamp duty. Swapping stamp duty for land tax as the ACT government is doing (over 20 years) and the NSW government is planning (using an opt-in arrangement), is one of the best ways the tax system can help”. So basically, instead of paying a one-off tax on property purchases, state governments are now thinking of implementing an annual property tax which would be based on land value, similar to council rates. But of course, any tax reform has pros and cons. According to the ABC’s article, “Stamp duty discourages people and businesses from changing addresses as often as they should, meaning workers live further away from their work than they would and are reluctant to move to where there is better work. Whereas land tax makes sure land is used for its most useful purpose and not left idle. Efficiency-wise, it makes sense to swap one for the other, but as with all changes, there will be winners and losers, some of them surprising.”

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