Half of Australia’s paused home loans still not being repaid as amnesty period comes to a close
Almost half of Australian home loans deferred due to the coronavirus pandemic are now being repaid, but that also means half are not.
- Almost 270,000 Australian home loans are currently not being repaid
- Reports suggest one in five people with loans on pause are ‘ghosting’ or avoiding communications from their lender
- Australian Banking Association CEO Anna Bligh has called on people who are in financial difficulty due to the effects of the pandemic to engage with their bank
That leaves questions about the options customers have as the grace period ends, and the state of the loans left behind as healthier ones resume normal payments.
Figures from industry body the Australian Banking Association (ABA) add to what we know about the state of the economy, seven months after the impact of coronavirus melted the economy.
In June almost 500,000 home loans with major banks were on a “pause” and almost one-in-10 mortgages in the entire country were not being paid.
That number as of last week is now closer to 270,000.
In March, banks gave an almost blanket offer that allowed people to stop making payments for six months.
The fall in the percentage of mortgages on pause is reflected by slumps in the number of business and other loans that were frozen, but now they are getting back on track too.
“It shows that more Australians are getting back on their feet and resuming their loan repayments.
“These loan deferrals have helped hundreds of thousands of Australian families and small businesses survive the pandemic.”
Need for ongoing support from banks
Australians are not out of the woods yet.
And media reports suggest one-in-five people on pause are “ghosting” their lender: not responding to phone calls, texts, emails or internet messages.
Data from Australia’s biggest lender, the Commonwealth Bank, backs up the industry-wide numbers.
The number of its home loans being deferred fell from 210,000 in June to 129,000 this week, representing a 48 per cent drop.
“Further significant reductions are expected as initial temporary repayment deferrals continue to expire through October,” chief executive Matt Comyn said just before the bank’s annual general meeting.
Loans for investment housing made up over a third of mortgages still being deferred (34.1 per cent) towards the end of September.
Loans that had a deposit of less than 10 per cent of the purchase price make up 14.2 per cent of the pool of mortgages still on pause.
Both those figures have increased by a percentage point a month, meaning an increasing proportion of the loans remaining in the deferral bucket are riskier than the ones being removed and rehabilitated.
Banks have been clear — even though a potential four-month extension was announced — that will only be open in limited circumstances.
“Extending a deferral is only really an option where there’s certainty about returning to a sense of income to repay the debt,” NAB group executive for personal banking Rachel Slade said, ahead of the looming expiry date for most loans deferred in March.
Options for customers include to work with the bank to restructure or vary the loan, for example switching to interest-only payments for a period of time. (Interest-only loans don’t reduce the principal amount borrowed over time, they simply meet the interest payments on the figure already owed and essentially tread water).
Loans can be extended, a further four-month deferral could be granted, our customers who are unable to pay in the longer-term will be helped to sell up or finish up the loan.
“Right now, it’s really important that people contact their bank to figure out the path ahead,” Ms Bligh said.
“The earlier customers speak to their bank, the more options they have to help find a way through.”
‘Seems to be profiteering’
West Australian worker Dave isn’t pleased with what he’s been offered so far.
When the father of four saw his work hours and income slide, he deferred the mortgage on his family home.
“The initial deferral was simple,” he said.
“It was easy, you went online and just basically, it was like a questionnaire, you didn’t even have to speak to anyone.”
But coming out the other side has been harder.
With work picking up — but still greatly uncertain — Dave was offered to shift to an interest-only loan, but at a worse rate than what he previously had.
“They said ‘you can go on interest only, it’s 5.42 per cent’ but I’m currently paying 3.58 per cent,” he said, describing his principal and interest arrangement — loans that are typically priced lower than interest-only.
Australia’s largest banks are still working through the cases thousands of individual customers, and can be expected to suggest many move to paying interest-only until their incomes recover.
“Moving to interest-only can be a good halfway measure, as the repayments are usually lower, and while an interest-only loan in normal circumstances typically comes with a higher interest rate, we’d expect the banks to cut them some slack,” said Sally Tindall, research director at comparison site RateCity.
“Many of these customers don’t know what the future holds. They are worried and stressed. The last thing they need is to be told they have to pay more interest on their debt.”