Banks will offer to extend a six month home loan deferral by up to another four months. Image by Kelly Barnes/AAP PHOTOS

Financial Services

Banks offer to extend home loan deferrals

2020-07-09 11:38:59

Australia’s major banks have agreed to extend a six-month repayment holiday for home loan customers struggling financially on account of the coronavirus pandemic.

Banks will contact customers with reduced incomes and ongoing financial difficulty due to COVID-19 as they approach the end of their deferral period, to ensure they can return to repayments wherever possible.

However, if they are unable to restart payments at the end of a six month period, customers will be eligible for an extension of their repayment holiday for up to four months, on a case-by-case basis.

The Australian Banking Association on Wednesday said a deferral extension will not be automatic, and will only be provided to those who genuinely need some extra time.

“This next phase of bank support will avoid a ‘cliff’ for customers in September and give them the breathing space they need to work with their bank and get back on their feet financially” ABA Chief Executive Anna Bligh said.

Social restrictions imposed by the government in March led to a wave of unemployment and business closures across Australia, prompting banks to offer a repayment holiday of six months to struggling home loan customers.

The Australian Prudential Regulation Authority in March allowed banks to offer borrowers an option to defer repayments for up to six months, and had said they need not treat the repayment holiday period as a period of arrears for the purpose of capital adequacy and regulatory reporting.

The banking regulator on Wednesday announced it would extend by another four months this temporary capital treatment for bank loans with repayment deferrals, as well as temporarily adjust the capital treatment of loans where terms are renegotiated.

“This will help to avoid unnecessary hardship and foreclosures, and allow the banking sector to work with its customers to find the best solution to manage their debts,” APRA Chair Wayne Byres said.

The ABA said banks will work with customers to find the best options to restructure or vary their loan, including by way of extending the length of the loan, converting to interest-only payments for a period of time or by consolidating debt.

If at the end of this period, customers continue to be severely financially impacted and are unable to make repayments, they will be assisted through their bank’s hardship process to determine the best long-term solution for their individual circumstances, it said.

Commonwealth Bank said while many of its retail and business customers have resumed paying their loans, it will allow customers to keep their loans in deferral for up to a further four months, on a case by case basis.

Australia’s biggest bank said it has so far provided loan repayment deferrals to almost 130,000 home loans and 100,000 business customers, with total financial support of over $15 billion.

Rival Westpac also said it had so far helped more than 130,000 mortgage customers defer their repayments for up to three months, with a further three months available on review. It will also extend the additional deferral option to struggling customers.

ABA’s Ms Bligh said over 800,000 loans have been deferred across Australia, and given the significant amount involved, their would be an impact on banks.

“There’s no doubt that at some point banks’ bottom line will take a hit from the support they’re offering, she told reporters in Sydney.

“But in the long term, banks want to see their customers stay in their homes, they want to see their businesses thriving and … that is in the best interest of customers and of banks.”