Australia’s largest bank has publicly committed to keeping people in their homes until late next year if they’re struggling to resume repayments, but other big banks have so far abstained from following its lead.
Commonwealth Bank customers struggling to resume their deferred mortgage repayments due to the COVID-19 pandemic will have time to repair their finances before having to sell their home, Angus Sullivan said, the bank’s group executive of retail banking services.
“For owner occupier customers who made their home loan repayments on time for at least 12 months prior to their deferral, but are unable to recommence their full repayments, we will ensure they can remain in their home until at least September 2021,” he said.
“This will give these customers the confidence that they can remain in their home while they focus on improving their financial health.”
Commonwealth Bank has about 129,000 customers who deferred their mortgages, according to September figures from the Australian Prudential Regulation Authority (APRA).
Most people are doing okay, but some are really struggling
The decision to place a moratorium on housing foreclosures comes after banks were challenged in an op-ed published by Financial Counselling Australia (FCA). The op-ed, written in first person as a customer, spelled out a list of steps banks could take to help those struggling.
“...The kind of arrangements that were common pre-pandemic just aren’t going to cut it this time,” Fiona Guthrie said, chief executive of FCA.
“Short-term moratoriums of three months won’t be long enough. ... Think longer-term deals. About interest only. About debt waivers. About combinations of all of them.”
Commonwealth Bank’s Sullivan responded to the op-ed in a letter to Ms Guthrie.
“You asked that we look to find innovative solutions to support them,” Mr Sullivan said, in the letter seen by RateCity.
“I’m pleased to confirm that we will be putting in place a freeze on forced sales for COVID home loan deferral customers who are unable to return to full repayments.”
Other banks have not followed CBA’s lead
Westpac, NAB and ANZ have not followed CBA’s lead in publicly committing to a moratorium on housing foreclosures until late next year. When contacted by RateCity, they directed us to existing financial support policies.
The big four banks have a combined 467,000 people yet to resume mortgage repayments, according to APRA’s September data.
The Reserve Bank of Australia estimates about 15 per cent of people who deferred their repayments will likely not be able to resume them.
“Some borrowers may be able to restructure their debt … and lower their repayments,” the RBA said, in its biannual financial stability review.
“However, some borrowers may need to sell their property to repay their debt.”
Customers had to have their income impacted by the COVID-19 pandemic for their mortgage repayments to be deferred.
About 937,000 people were unemployed in September, according to the Australian Bureau of Statistics (ABS), pushing the unemployment rate from its typical level of 5 per cent to 6.9 per cent.
Underemployment is also at a record high, according to the ABS. September’s rate is at 11.4 per cent, after sitting at about 8 per cent for the last four years.
Mortgage delinquency rates, where people are more than 30 days late on their mortgage repayments, are already up by half a percent in the year to May 2020, the analysts at Moody’s said.
Mortgage deferrals are scheduled to end early next year
Financial regulators have drafted rules that allow people to defer their mortgages until 31 March 2021. Commonwealth Bank’s moratorium on housing foreclosures gives its affected customers an additional six months to figure out how they can keep the roof over their heads.
The Australian Banking Association, the advocacy group representing the banking industry, said the process of contacting customers six months after their deferrals were granted is already underway.
“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,” Anna Bligh said, chief executive of ABA.
“There’s an additional 5000 new or redeployed staff working to ensure customers understand their options.”
Depending on their circumstances, customers are generally being offered one of three options.
Eligible customers can continue their loan deferral until 31 March, 2021. Under this option, interest continues to be calculated on the balance of the loan.
Others can lower their monthly repayments by converting to an interest-only loan, or by extending their loan terms.
“If you switch to interest-only repayments because that’s all you can afford to pay, make sure your bank doesn’t hike your rate,” Sally Tindall said, research director at RateCity.
“Customers shouldn’t be hit with a rate hike at a time when they can’t make ends meet.”