Download the reports for the full picture:

Australian Markets Weekly: Loan deferrals fall as prices rise and mortgage activity lifts

Analysis

• APRA recently released updated details on the major banks’ home loan deferral scheme. At its peak use in May, 11% of home loans were being deferred. That figure has now fallen back to 7.4% as at September 30.
• Alongside the official APRA data, three of the four major banks (including NAB) have provided further colour on mortgage deferrals in their recent earnings reports. As at mid-October, 66% to 92% of those who had deferred repayments had either elected to resume repayments, or have advised their intent to resume repayments prior to expiry.
• The decline in loan deferrals aligns with employment data to date, which shows outside of Victoria, hours worked are now just 2.0% below pre-COVID levels, recovering some 80% of the 10.8% decline since the height of the pandemic. More recent Payrolls data has cast a little more uncertainty following the tapering of JobKeeper, though SEEK Job Ads have continued to recover.
• Prices have also stabilised in recent months, with mortgage market activity picking up in the owner-occupier segment and a notable shift towards fixed rate mortgages (fixed rate loans now comprise 25% of the market). As a result, the end of the deferral scheme in March 2021 appears to be less of a risk than previously expected.

RBA done on rates, will look to more QE if further stimulus is required

• The RBA Statement on Monetary Policy (SoMP) last Friday saw both the near-term growth outlook and unemployment trajectory upgraded, but with still uncomfortably high unemployment at 6% and with inflation below target at the end of 2022.
• Given such an outlook, markets are naturally asking what else the RBA can do. The SoMP suggests the RBA is done on rates with the focus policy being on the RBA’s QE program (“view a negative policy rate as extraordinarily unlikely”; “the [RBA] Board is prepared to do more and undertake additional purchases [if circumstances require]”.

The week ahead

• Australia: : A quiet week with only the NAB Business Survey on Tuesday and the Westpac-MI Consumer Sentiment Index on Wednesday of note. Consumer confidence should rise again after the lifting of the Victorian lockdown in October.
• International: NZ: The RBNZ meets on Wednesday where consensus is for on hold ahead of negative rates in 2021. CH: CPI/PPI figures on Tuesday should show a continued disinflationary environment that will reinforce notions of a subdued global inflation picture, while Aggregate Financing figures are due anytime in the week.  EU/UK: UK-EU trade negotiations continue ahead of the EU Summit on November 19. Also in Europe the heads of the ECB, BoE and Fed speak at an online ECB Forum on Thursday, titled “central Banks in a shifting world”. US: CPI on Thursday the biggest piece of data in a quiet week.

Chart 1: Loan deferrals are falling after peaking in May

Chart 2: Decline in deferrals reflects more expiry/exit

Customers can receive Australian Markets Weekly and other updates directly in their inbox by emailing nab.markets.research@nab.com.au with the name of their NAB relationship manager.