Reality bites as mortgage holidays set to end

The holiday is ending – mortgage payments are back. Photo: TND

The holiday is ending – mortgage payments are back. Photo: TND Photo: TND

Tens of thousands of home owners are expected to need ongoing support after pandemic mortgage holidays end next month. 

The nation’s largest lender, Commonwealth Bank, revealed on Wednesday that some 25,000 households had yet to resume repayments at the end of January with debt totalling $9 billion. 

Although that’s far less than at the height of the pandemic, Commonwealth Bank CEO Matt Comyn said those still on mortgage holidays were likely to be among the bank’s most vulnerable customers.

Mr Comyn told reporters it was reasonable to expect a large number would require further assistance beyond the program’s scheduled end on March 26. And the other major banks have said something similar.

“Our plan is to continue to provide support … we’re working very closely with customers,” Mr Comyn said during a media call. 

CBA has now made about 250,000 calls to those on deferred loans to check how they’re doing heading into the March 26 deadline.

Other major banks, which haven’t provided recent figures, were holding about 67,000 other deferred loans between them at the end of last year.

Mortgage reality a ‘terrible policy outcome’

Mr Comyn said CBA wouldn’t resume foreclosures until September at the earliest, but the reality is that some people would still be struggling when they did.

“It might not be viable for [a subset of customers] to continue to repay their loan,” Mr Comyn conceded.

“There are options around restructuring of a facility and potentially the sale of a property to reduce debt.”

Matt Comyn expects many people still on mortgage holidays to require more support. Photo: AAP

It’s a sobering reality that Financial Counselling Australia CEO Fiona Guthrie calls a “terrible policy outcome”.

“Some people might lose their homes because of a health crisis that’s no fault of their own,’’ Ms Guthrie told The New Daily.

“There’s a role for some sort of government support for these people.”

The good news, as with much in Australia at the moment, is that things could have been far worse, according to independent economist Saul Eslake.

“It’s a much smaller problem than we thought,” he told The New Daily. 

“There’s been a very rapid decline in mortgage deferrals.”

But that’s the big picture story.

At the household level, Ms Eslake said many Australians would be doing whatever it took to keep paying off the mortgage, including cutting back on food and avoiding trips to the dentist.

Support to continue: Why banks can afford to be flexible

Fortunately, “banks don’t want to be landlords” though and will avoid foreclosures wherever possible, Mr Eslake said.

And because households suffered less hardship than once feared, the banks have more room to offer extra help.

Banks can afford to [be flexible] without seriously impacting the overall quality of their mortgage books,’’ Mr Eslake said.

Each of the major banks has a slightly different plan to ease customers back into repayments.

National Australia Bank, which was carrying about 4300 deferred loans late last year, said it will continue to offer repayment moratoriums.

“[We’ll] provide support to these customers based on their individual circumstances, such as through reduced loan repayments, payment moratoriums, [and] employment support,” a spokesperson said.

However, deferrals extended beyond March 31 will affect a borrower’s credit rating.

ANZ, which is due to provide an update on deferrals on February 18, said it would continue offering “short-term repayment pauses”.

“When entering into payment arrangements with customers we seek to make sure they are sustainable and realistic,” a spokesperson said.

Westpac said it was looking at its options, which include giving more time to customers to get their affairs in order.

“Customers with ongoing financial challenges will receive tailored support on a case-by-case basis. We look at a range of options as part of this process,” a spokesperson said.

Notwithstanding the promise of extra support, Ms Guthrie urged home owners worried about resuming repayments to get in touch with their banks and brush up on their rights.

“There’s assistance available, even if you’ve had a loan deferral that’s coming to an end, that doesn’t mean you still don’t have rights to ask for hardship assistance again,” Ms Guthrie said.

“If the creditor refuses to assist you, talk to an independent financial counsellor.”

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