Homes could sell at a loss as time ticks for struggling borrowers with mortgage deferrals

More property owners could be facing losses when selling this year as mortgage repayment deferrals come to an end, though investors may be more susceptible to risk, according to a property analytics firm.

While a wave of forced sales has not happened, some lenders have suggested distressed mortgage holders – many of them investors – consider selling before the home loan repayment deferral ends, CoreLogic has said in its latest Pain and Gain report. 

“This could see an increase in loss-making sales over the following two quarters, particularly in more high-risk, investor concentrated markets,” the CoreLogic report said. 

Nationally, 12.8 per cent of the 52,000 housing sales tracked by CoreLogic made losses in the three months to June, up by half a percentage point during this period.

While not a significant jump, CoreLogic pointed out that the share of property sales that made losses is “relatively high historically”, sitting at the highest level since August 2019.

The rate is also above the five-year average of 9.8 per cent.

Across the capital cities, 13.3 per cent of properties changed hands at a loss, an increase of 90 basis points over the June quarter. The proportion was 12.1 per cent across the combined regional markets, up by 20 basis points.

Mortgage holidays and low rates protect housing market

The real estate market has been relatively cushioned from the pandemic and recession by a combination of mortgage holidays and government stimulus packages, keeping property listings at low levels.

“Mortgage repayment deferrals have reduced the incidence of distressed sales, and kept stock level low, which may have supported dwelling prices,” the report said.

Low home loan interest rates have also helped prevent significant price reductions, which would likely have bumped up the rate of loss-making sales in the market.

Twelve mortgage lenders have at least one interest rate below 2 per cent, while 87 lenders have at least one rate below 2.5 per cent, RateCity data showed. 

The lowest variable rate on offer is Reduce Home Loans’ 1.89 per cent, but only applies to mortgage holders with up to 60 per cent loan-to-value-ratio (LVR).

The lowest two-year and three-year fixed rates are both at 1.99 per cent, from:

• Community First Credit Union (two-year)
• Illawarra Credit Union (two-year)
• Bank First (three-year)
• Hume Bank (three-year)

Struggling owners not forced to sell yet

Many property owners who may have otherwise struggled with repayments have been supported by bank and government relief, and have avoided the need to sell in the June quarter, CoreLogic said.

Values fell by 0.8 per cent across the country in the three months to June, but dropped by 1.1 per cent in the three months to October, showing a slightly more rapid fall. October marked the fifth month in a row of decreasing housing prices.

Would-be sellers may have also been reluctant to let go of their properties in a market where prices are edging down, the report suggested.

Recent surveys have shown buyers are feeling confident about securing a bargain in the spring property market but cautious sellers are sensing this sentiment and are holding on to their properties. 

Gateway Bank chief executive officer Lexi Airey said buyers should be prepared for what could be tense competition in the spring selling season.

“If sellers hold off (listing their properties), this may heighten competition among buyers for their ideal property,” she said.

“It could also lead to some tough negotiation around prices.”

Owner-occupier houses have better chances of profitability

Houses held for longer periods by owners who lived in them were generally more likely to sell at a profit, the CoreLogic report also found.

Nationally, 89.6 per cent of houses made profits when sold in the June quarter, compared with 79.3 per cent of units. 

Units were more likely to be unprofitable due to the high level of apartment development seen since 2013.

But the June quarter marked the highest proportion of loss-making sales in seven years, despite houses generally having a higher likelihood of being sold at a profit.

The median profit for houses across the country was $229,873 in the same period, while the median loss was -$50,000.

For units, sellers made a median profit of $142,000 and a median loss of -$46,000.

The proportion of investors selling at a loss was higher than owner-occupiers, with 18 per cent of investors closing loss-making deals, compared with 11 per cent of owner-occupiers.

The report also found that sellers who had held a property for longer before selling generally made a bigger profit.

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