Australia’s financial regulators expect banks will exhaust their options to keep people in their homes as best they can if they’re unable to pay off their mortgages.
The regulators, the Australian Securities and Investment Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), also formalised plans to extend mortgage holidays and provided some guidance on how deferred mortgages can be restructured.
‘Deliver consumers appropriate and fair outcomes’: ASIC
ASIC and APRA issued separate public letters to banks yesterday setting out their expectations when it comes to transitioning customers off of mortgage holidays, and the efforts they should make to help customers who may not be able to meet their loan repayments.
Banks were to “engage” with borrowers whose mortgage deferrals were expiring and consider their individual financial position, giving them options, information and time to make an informed decision, ASIC said in their communications.
“Some lenders have raised queries with ASIC about how to approach situations where they identify that a consumer’s financial difficulties are so severe that they will not be able to repay their loan over the longer-term,” the regulator said.
“ASIC expects lenders to make all reasonable efforts to work with consumers to keep them in their homes if that is in their best interests.”
The regulator acknowledged temporary assistance might make a person’s financial situation worse in some cases.
“Such situations will need to be carefully identified by lenders and involve a high level of engagement with those affected consumers,” ASIC said.
Mortgage holidays can be extended and loans restructured: APRA
About 896,000 mortgages have been granted a repayment deferral for as long as six months, and many of them may be eligible for an extension of a further four months, John Lonsdale said, the deputy chair of the Australian Prudential Regulation Authority (APRA).
“Given the continuing economic uncertainty and to ensure an orderly transition of the (deferred home loan) portfolio whilst supporting borrowers, APRA will … provide authorised deposit-taking institutions (ADIs) with additional time to work with their affected customers through the COVID-19 period,” he said.
“Additionally, APRA will adjust the capital treatment of loans that are restructured to facilitate ADIs returning borrowers to a sustainable financial position.”
The decision to extend deferred mortgages means the people struggling to make full or partial repayments due to the pandemic do not have to be recognised as being in arrears, as per APRA’s reporting purposes.
How long can I defer my mortgage repayments?
Home loan repayments can be deferred for a maximum of ten months in total -- provided the deferral was put in place before 30 September, 2020.
People who request a deferral of their home loan repayments thereafter will receive a mortgage holiday of six months until 31 March, 2021.
“The temporary capital treatment ends on 1 April 2021 for all loans, irrespective of when the repayment deferral was initially granted or the period remaining on a deferral,” Mr Lonsdale said.
“ADIs should be encouraging borrowers that can restart repayments to do so, and to identify, monitor and manage those loans where this is not possible.”
- If you’re unsure what hardship relief is offered by your bank, please read our relief page for more information.
Restructuring might be better than refinancing: APRA
The regulator has made it possible for banks to restructure a loan rather than extend the deferral of mortgage repayments.
“In many cases and dependent upon the circumstances of a customer, it may be more appropriate for an ADI to offer to modify or ‘restructure’ the terms of a loan instead of providing a further repayment deferral,” Mr Lonsdale said.
He said banks are expected to ‘engage’ with borrowers to determine if their mortgage should be deferred, restructured or recognised as impaired.
The restructured mortgages will have to meet a benchmark set by the regulator and be restructured before next year’s 31 March deadline.