CBA: Fewer mortgage holidays, but house prices may dip

CBA: Fewer mortgage holidays, but house prices may dip

The chief executive of the nation’s largest bank anticipates most people on a mortgage holiday could get back to making repayments soon, that the most vulnerable of them could swap over to interest only loans, and that house prices could dip by double digits. 

Commonwealth Bank’s full year results, released yesterday, revealed the impact COVID-19 measures have taken on its bottom line, and offered its projections on the financial wellbeing of workers, the housing market and the country.

“It has been a challenging six months for many Australians, from bushfires at the start of the year, right the way through to the pandemic,” chief executive Matt Comyn said. 

“...From our perspective, we’ve been very focused on doing what we can … to make sure that we’re in the best possible position to respond to a variety of different economic scenarios.

“Overall, we’re lucky that we came into this period in a very strong position so the bank’s been able to operate very effectively during that time, but of course we have been impacted.”

Profit fell, but was better than expected

The bank’s cash profit fell 11.3 per cent in the financial year to $7.3 billion. A $1.5 billion deduction -- included in the financial result -- was set aside to deal with the costs associated with the pandemic.

Investors were paid a fully franked dividend of 98 cents per share, effectively the maximum possible under guidance from the regulator. The dividend payment, at the upper limits of what’s permitted under APRA rules, was seen as a sign of confidence. 

“For the Commonwealth Bank, we feel very well positioned for a range of different economic scenarios,” Mr Comyn said.
People on a mortgage holiday are resuming repayments

Commonwealth Bank had 154,000 customers request their mortgage be deferred at the peak of the coronavirus pandemic in March. Since then, 19,000 have resumed making full loan repayments.

About a quarter of the 135,000 still on a mortgage holiday are making partial repayments.

The bank considers 12 per cent of them to be in a higher risk category. 

“We are now contacting all customers with deferred loans to talk with them about their options,” the bank said in its financial results, “including returning to full or part payment, or converting their loans to interest only.”

The number of deferred business loans has also dropped from a peak of 86,000 to 59,000 --  representing about 15 per cent of all business loans.

Property prices are expected to dip

The bank has been preparing for a dip in the property market as severe as 29 per cent, Mr Comyn said, but he said this was a precautionary measure and unlikely to happen.

“I think a reduction ... in the order of 10 to 12 per cent is still a reasonable assumption," he told the SMH.

"We do have an expectation that in some areas, particularly in inner-city areas, there has been downward pressure on rental yields, so we think that that’s going to weigh on house prices.”

He said the market had responded to the disruption of the COVID-19 pandemic better than expected.

"We would say overall, and looking at the numbers in the last few months, the housing market has been more robust than perhaps we would have anticipated from March.”

Unemployment could hit double digits as the economy contracts: CBA

Australia’s handling of the COVID-19 pandemic fared well compared to many other countries in the world, Mr Comyn said, though he added the financial outlook ‘remains highly uncertain’.

“We have seen a sharp economic contraction during the course of the year as a result of the pandemic,” he said. 

“Not quite as bad as we’d first feared, but certainly the pace of recovery does look like it will be longer.”

CBA estimates the gross domestic product will fall by about four per cent over the calendar year, before bouncing back by two per cent by the end of 2021.

“Unemployment is likely to peak towards the end of this calendar year at close to 10 per cent,” Mr Comyn said, “which is clearly a significant economic impact overall.”

The projection is in line with estimates from the Reserve Bank of Australia

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How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is mortgage stress?

Mortgage stress is when you don’t have enough income to comfortably meet your monthly mortgage repayments and maintain your lifestyle. Many experts believe that mortgage stress starts when you are spending 30 per cent or more of your pre-tax income on mortgage repayments.

Mortgage stress can lead to people defaulting on their loans which can have serious long term repercussions.

The best way to avoid mortgage stress is to include at least a 2 – 3 per cent buffer in your estimated monthly repayments. If you could still make your monthly repayments comfortably at a rate of up to 8 or 9 per cent then you should be in good position to meet your obligations. If you think that a rate rise would leave you at a risk of defaulting on your loan, consider borrowing less money.

If you do find yourself in mortgage stress, talk to your bank about ways to potentially reduce your mortgage burden. Contacting a financial counsellor can also be a good idea. You can locate a free counselling service in your state by calling the national hotline: 1800 007 007 or visiting www.financialcounsellingaustralia.org.au.

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.