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Half of all mortgage deferrals come up for review: ABA

Half of all mortgage deferrals come up for review: ABA

About half of all people who deferred their mortgage following the sudden blow of COVID-19 will be contacted by the big four banks in the next couple of months to evaluate their ability to resume repayments, a banking industry association has said.

And if they can’t, they’ll have to consider a range of other options, such as another deferral, a loan restructure or downsizing their property

Mortgage repayments are due, for many

Almost 900,000 mortgage repayments were put off by the 20 largest banks following the brunt of COVID-19 in March -- an effort that delayed the repayments of about $266 billion, according to the Australian Prudential and Regulation Authority (APRA).

Six months on and the banks are contacting half of all of the people who deferred their repayments -- about 450,000 people in September and October -- to see if they can resume repayments or find other solutions, Anna Bligh said, chief executive of the Australian Banking Association. 

“The loan deferral measure offered to customers by Australia’s banks has led to the largest ever customer contact process in the industry’s history,” she said.

“There’s an additional 5000 new or redeployed staff working to ensure customers understand their options.”

About two-thirds of the mortgages deferred were for personal accounts. The ABA estimates 80,000 will be contacted by the end of September with a further 180,000 being contacted by the end of October.

What will be on the table in these phone calls?

The purpose of contacting nearly half a million people is to find out the progress of their financial recovery, and to identify the next steps needed to see that recovery through, the bank’s association said.

“It’s the bank’s job to set out all the options and implications and ensure customers have the information and the time to make the right decision to suit their needs,” Ms Bligh said.

“As customers who are able to begin their repayments again, it allows banks to focus their support on those who really need it.”

There’s a range of options on the table for people still recovering from a loss of income due to the COVID-19 pandemic, these include:

Restructuring their loan

This can include converting to an interest only loan for a period of time or increasing the term of the loan to lower mortgage repayments. 

The financial regulators have warned this option should be undertaken when it’s in the financial interest of customers.

Extending mortgage holidays

Financial regulators have paved the way for mortgage deferrals to be extended. Some mortgage holders will have the option of postponing repayments for four more months.

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, APRA has said. People who request a deferral of their home loan repayments thereafter will receive a mortgage holiday of six months until 31 March, 2021.

Interest continues to be charged on deferred mortgages, and so the reprieve of a mortgage holiday may be offset by the potentially thousands of dollars added to the loan.

The Australian Banking Association has warned mortgage holidays will not be automatically extended.

‘Tailored options’ -- may include downsizing

Others who can’t afford to pay their mortgage “over the longer term will be offered tailored assistance that addresses their needs,” the banking association said. 

Executives at three of the four big banks have recently said customers may need to downsize their home or investment if they find they are overextended in the current financial climate.

Company
Product

Fixed Rate Home Loan

Real Time Rating™

0.00

/ 5
Interest Rate

2.07

% p.a

Fixed - 2 years

Comparison Rate*

2.65

% p.a

Repayment

$1,282

monthly

Go to site
Company
Product

Green Home Loan

Real Time Rating™

0.00

/ 5
Interest Rate

2.08

% p.a

Variable

Comparison Rate*

2.36

% p.a

Repayment

$1,283

monthly

Go to site
Company
Product
Interest Rate

1.85

% p.a

Intro 24 months

Comparison Rate*

2.21

% p.a

Repayment

$1,308

monthly

Go to site
Company
Interest Rate

2.09

% p.a

Fixed - 1 year

Comparison Rate*

2.09

% p.a

Repayment

$1,285

monthly

Go to site

The role of the banks, the role of mortgage payers 

The financial regulators issued open letters to the banking industry spelling out their expectations: exhaust all options to make sure people keep their homes -- when it is in their best interests. 

The letters, issued by the Australian Securities and Investment Commission (ASIC) and APRA, also recognised the obligations of mortgage holders, who are to resume repayments when they financially recover.

“APRA expects Authorised Deposit-taking Institutions (ADI, commonly known as banks) to proactively engage with affected borrowers between now and the end of the current deferral period to determine whether to grant an extension on the deferral period, to restructure or to recognise a loan as impaired,” John Lonsdale said, deputy chair of APRA. 

“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. 

“APRA will be engaging closely with ADIs on their credit risk management practices for affected loans.”

Of the 900,000 personal and business loans that have had payments deferred, about 109,000 were able to resume payments by the end of July, ABA said.

Another 100,000 are expected to resume in the month of August, they added.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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