RBA warns ahead of uneven recovery

27 Oct 2020

Property prices in Australia is set to drop, the Reserve Bank of Australia is suggesting, which would lead citizens into "negative equity". This is when property value falls below the outstanding balance on their mortgage. Such an event is a result of the pandemic’s impact on the country’s economy and recession. 

During her speech on Tuesday, RBA assistant governor Michele Bullock discussed Australia's financial stability and hinted at more turbulent times ahead. Business were warned of further struggle due to the recession and the Australian economic recovery being "unpredictable and uneven,” adding, "There will be rising business insolvencies and problems for some households in servicing their debts.”

Banks will see a rise in non-performing loans as households will struggle to meet their repayments as wages will also be affected.

Bullock said, "Price falls could be exacerbated by housing investors who, seeing vacancy rates rising and rents falling, decide to sell.” 

Noting a peak in deferred payments in June, Bullock said, “Many of these deferrals ended in September and October and payments have recommenced. There is still, however, a significant minority of households that are seeking to remain on deferred repayments. Many of these loans are higher risk, in that they tend to have higher loan-to-valuation ratios or are held by people who work in industries particularly at risk from the current health crisis.”