Are We About to See a New Wave of Mortgagee Sales ?

With all of the havoc being caused by COVID-19, many are concerned we may see a new wave of mortgagee sales. Restaurants, airlines, hotels, and many other industries are laying off workers or dramatically cutting their hours. Without a job, many homeowners are wondering how they’ll be able to afford their mortgage payments.

In spite of this, there are actually many reasons we hopefully won’t see a surge in the number of these distress sales, compared to what happened during the housing crash. Here are just a few of those reasons:

The Government Learned its Lesson the Last Time

During the previous housing crash, the government was slow to recognize the challenges homeowners were having and waited too long to grant relief. This time action is being taken swiftly with Government subsidies.

Homeowners Learned their Lesson the Last Time

When the housing market was going strong in the early 2000's, homeowners gained a tremendous amount of equity in their homes. Many began to tap into that equity. Some started to use their homes as ATM machines to purchase luxury items like cars, jet-skis, and lavish vacations. When prices dipped, many found themselves in a negative equity situation (where the mortgage was greater than the value of their homes). Some just walked away, leaving the banks with no other option but to foreclose on their properties.

Even if prices dip (and most experts are not predicting that they will), with recent capital growth, most homeowners will still have vast amounts of value in their homes and will not walk away from that money.

The exceptions include owners that have purchased recently and perhaps have been made redundant. They will no doubt require some financial assistance to get them through these challenges. Sadly there are always casualties in times of a crisis of this magnitude.

In Wellington, thankfully we do have a high percentage of Government employees who may even be working from home as well as being on full income during this lockdown period.

Bottom Line

These are not going to be easy times. However, the lessons learned from the last financial crisis have Kiwis better prepared to weather the financial storm. For those who can’t, help is on the way with the six month mortgage payment holiday, although this offer is full of fish hooks. This could have been presented better to be honest and would most likely be only taken up by financially stressed property owners as a last resort measure.