Loan repayment deferrals phasing out

Lenders have begun preparing for the looming conclusion of the COVID-19 loan repayment deferrals, which is scheduled to expire on 31 March 2021.

National Australia Bank (NAB) has confirmed that it stopped accepting new mortgage deferral applications last week (20 January 2021) to allow for two-month deferrals finishing at the end of March.

A NAB spokesperson told Mortgage Business: “Home loan deferrals have provided much-needed relief and time to customers affected by the pandemic. Since the start of the pandemic in March, NAB has granted more than 110,000 home loan deferrals to customers who have been impacted financially by COVID.”

The bank revealed that, as at 30 November, around 7,000 home loan accounts were deferred with total balances of $3.56 billion.

“While it is pleasing to see most of our customers have resumed repayments, we know some customers will need our ongoing assistance,” the spokesperson said. 

“We will continue to provide support to customers in need based on their individual circumstances, such as: reduced payment arrangements, payment moratoriums, employment support, including resume and interview skills, and connection to financial counselors.” 

Mortgage Business reached out to the remaining three major banks to ascertain their deadline dates, with all three banks stating they were yet to be confirmed.

However, Westpac, the Commonwealth Bank of Australia (CBA) and Australia and New Zealand Banking Group (ANZ) reiterated that they would also continue to support customers through the loan-repayment-deferral aftermath on an individual basis.

CBA response

A CBA spokesperson stated that “the next phase of support for customer recovery... includes contacting all home loan customers as they approach the end of their temporary loan repayment deferral period to discuss their individual circumstances and available support”.

“Support includes switching to interest-only repayments alongside our existing range of customer hardship solutions,” the CBA spokesperson added.

Westpac response

Similarly, a Westpac spokesperson stated that “customers with ongoing financial challenges will receive tailored support on a case-by-case basis”. 

The bank has reportedly assisted more than 145,000 mortgage customers with home loan deferrals since the start of the pandemic, while “approximately three-quarters have recommenced repayments”, according to the Westpac spokesperson.

ANZ response

ANZ told Mortgage Business that “regulators have made it clear that mortgage deferrals will cease at the end of March”, but that the bank will “continue to accept requests from customers experiencing financial difficulty and [will] work with them to understand their circumstances and propose options best suited to their individual position.

“There are a number of options for those who are still experiencing difficulty, whether COVID-related or not. These include restructuring their lending to reduce repayments, partial payments or short-term repayment pauses,” the spokesperson said.

Although the loan repayment deferral period is slowly coming to an end, the ANZ spokesperson revealed that “the majority of [the bank’s] deferrals ceased receiving assistance late last year”.

Of the 96,000 home loans that had deferred repayments, approximately 72,000 have since restarted repayments, according to ANZ.

Deferrals across Australia

The majority of borrowers on COVID-19 deferral have already restarted their repayments.  

Indeed, the Australian Prudential Regulation Authority’s (APRA) monthly data, temporary loan repayment deferrals due to COVID-19, has shown that loan repayments have been gradually coming back to ‘performing status’.

There has been a significant shift in volume of deferred loans from August 2020, when there were $229 million of deferred loans, compared with just $60 million in November 2020, according to the report.

The data, which was released earlier this month, also found that exits from deferrals continued to outweigh new entries for the fifth straight month. 

Speaking to ABC NewsRadio earlier this week, the Australian Banking Association’s CEO, Anna Bligh, commented: “There are still some people whose deferrals have not yet reached the end date and banks are working with them individually.”

“Almost 90 per cent of the 900,000 Australians who deferred their loan repayments are now back making those payments,” Ms Bligh said. 

“And I should say that the 900,000 figure is both mortgages and small-business loans.

“That really, I think, demonstrates that Australians wanted to get straight back in and get their mortgage payments back in order,” she said.

Ms Bligh added, however, that while banks can provide options dependent on the individual circumstances of each customer, she added that “the best thing for the customer… is not to be on deferral for so long that they start to lose equity in their most valuable asset”.

What happens next

The ABA noted that, once customers come to the end of the deferral period, the capitalised interest from the deferral period will be required to be repaid either by extending the length of the loan or increasing repayments after the deferral period.

For example, a CBA spokesperson told Mortgage Business that those “who received a deferral solution will not see an increase in their monthly repayments when coming off a deferral”.

“This is because their arrears are auto-capitalised and their contracted loan term is adjusted on exit, meaning their required monthly repayment will not increase on exit,” the CBA spokesperson said.

Similarly, ANZ said it would be extending loan terms rather than increasing customers’ repayments as they “don’t want to put anyone in any more financial hardship than they might already be”.

Members of the broking industry have told Mortgage Business that they are generally pleased with how the lenders have been treating and communicating with customers that have been receiving COVID-19 support.

Nicole Cannon, broker and director of Sydney-based brokerage Pink Finance, told Mortgage Business: “The few customers whom I have spoken to that have come off their COVID-19 payment pause arranged to have their monthly repayment increased to cover the interest accord over the pause period so that they can maintain the home loan within the original contract term.  

“All of my customers whom I have spoken to on this have been happy with that as an outcome and that it was a huge relief for them in a time of uncertainty – especially for my customer who runs a small business,” she said.