Paying down home loans has kept loan arrears low, but it also presents a risk for the budget’s stimulus attempts.

On one hand, the figures, which explain the relatively low level of arrears among mortgages seeking payment relief, provide a counterargument to concerns expressed by the Reserve Bank of Australia in last week’s Financial Stability Review that defaults could spike as these pandemic-relief measures come to an end.
But they also show a clear risk for the $17.8 billion in personal tax cuts Treasurer Josh Frydenberg announced last week to encourage people to spend and help lift the economy out of its first recession in 29 years: consumers could save, rather than spend, extra money they get.
Mr Austin said the increase in the extra payments by Firstmac’s customers, which at the end of September stood at 7.3 per cent of its total $12.2 billion portfolio, showed people were cautious.
“It would have to suggest borrowers were feeling uncertainty about whats coming, so theyre paying down mortgages,” he said. “The obvious follow-on is theyre choosing not to spend it.”
AMP Capital chief economist Shane Oliver said much of the delayed spending by consumers during lockdown was still likely to happen.
“A lot of spending delayed was mainly on services,” Dr Oliver said.
“There will come some point in the next six to 12 months when people will say ‘It looks like Im going to keep my job after all. Were starting to get coronavirus under control. Ive got my mortgage to a lower level, so I might as well go out and buy a car or go on holiday.'”
People who have deferred repayments know when deferrals end they will have to pay higher payments or pay for longer.
Saul Eslake, economist
The budget’s tax cuts targeted at 11 million people will hand the most cash to wealthier people. Independent economist Saul Eslake said these higher earners, who would ordinarily spend less, would hang on to even more cash in the present time of economic uncertainty.
“We know the higher up the income scale, the less pressure youre under to spend every dollar youve got,” Mr Eslake said.
“In addition to the normal arguments that apply, youve got additional reasons to be sceptical as to whether people would spend it.”
The winding back of the JobKeeper wage subsidy was one factor, he said.
“If youre on JobKeeper and suppose 2.5 million workers are you might think ‘It might be good to put some money away for when JobKeeper terminates’,” Mr Eslake said.
The ending of mortgage repayment holidays was another factor, he said.
“People who have deferred repayments know when deferrals end they will have to pay higher payments or pay for longer.”
A sign of improvement in confidence came in the decline of borrowers with fully or partially suspended repayments in Firstmac’s figures.
The lender’s national percentage of accounts in hardship arrangements fell to 3.8 per cent at the end of September, down from 4.8 per cent in August and well below the mid-June peak of 5.7 per cent.
The percentage also fell for the first time in Victoria, the state hardest hit by the pandemic, to 4.7 per cent from 5.5 per cent in August.
“It feels like a soft landing,” Mr Austin said.
Mortgage prepayments had kept loan arrears on FirstMac’s 3.8 per cent of borrowers on hardship arrangements low. Only 61 per cent of them were 30-plus days in arrears, despite the pandemic stretching for seven months, the lender said.