Introducing Deferred Mortgages
In response to the massive job loss and lost hours that resulted from the spread of COVID-19, the ABA worked with the banks to offer borrowers 6 months of deferred mortgages which were due to end in September. The Morrison Government implemented jobkeeper and jobseeker also slated to end in September. This caused many experts and journalists to point out the coinciding end dates and how this could result an economic cliff, meaning that thousands of people would systematically default or be forced to sell their home. Fortunately, the ABA and the Morrison Government have extended support until early 2021.
The impact of Deferred Mortgages
New Australian Banking Association (ABA) data reveals that almost half of deferred mortgages have resumed, seven months after the impact of COVID-19 sent our economy tumbling.
In March, banks offer allowed people to very easily stop making payments for six months.
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.
“This a good sign for the economy. It shows that more Australians are getting back on their feet and resuming their loan repayments”ABA CEO Anna Bligh
“These loan deferrals have helped hundreds of thousands of Australian families and small businesses survive the pandemic”, Ms Bligh said.
In addition to home loans, 82,000 small and medium business loans have resumed. That’s another 41% of small and medium businesses that have resumed deferred mortgages.
However, that leaves half of deferred mortgages still going unpaid, and almost 60% of deferred mortgages for small and medium businesses also, once again, still going unpaid.
How these families will be supported by their banks will come to light with time. For now, questions remain as to how many of the remaining loans will continue to be deferred, and how many will be forced into an early sale.
A need for ongoing support from the banks
While many of Australians in the less impacted states such as South Australia, are moving on from COVID-19 as though it were vanquished already, many are still struggling.
ABC news found media reports suggesting one-in-five people on pause are “ghosting” their lender: not responding to phone calls, texts, emails or internet messages.
“We are conscious that many of our customers still require our ongoing support, particularly in regions most affected by COVID-19, such as Victoria, which is reflected in requests for deferral extensions.”CEO of The Commonwealth Bank of Australia (CBA), Matt Comyn
Of the remaining deferred mortgages 34.1% are investment properties, and 14.2% have a deposit of less that 10% of the purchase price. These figures show that the remaining deferred mortgages are those with higher risk attached.
Banks have been clear – a very limited number of deferred mortgages will be extended further, and many will miss out. Rachel Slade of NAB group stated as such ahead of the impending expiry date for most deferred mortgages.
“Extending a deferral is only really an option where there’s certainty about returning to a sense of income to repay the debt,”
“Otherwise, really, the customers are just deferring an inevitable outcome and in fact the situation they might find themselves in later on is worse than facing it today.”NAB group executive for personal banking, Rachel Slade
Borrowers currently relying on deferred mortgages to make ends meet, but fearful of falling through the cracks as the banks restrict access to deferred mortgages must contact their bank as soon as possible to determine eligibility. If they fail to meet the requirements then they must work with the bank to find a solution. This may mean going interest only or extending the loan.
Speaking to Karl Stefanovic on the Today Show, Anna Bligh had this to say on the matter.
“Right now, it’s really important that people contact their bank to figure out the path ahead. The earlier you speak to your bank, the more options they have to help you find a way through”, Ms Bligh said.
“Banks will work with customers to figure out a tailor-made solution. That might include restructuring a loan, or in some cases, granting an additional four month deferral.”
“If you are in financial difficulty, please call your bank, they can help you find a way through. Don’t tough it out on your own.”
Indeed, contacting your bank early may mean the difference between an automatic default rendered by an automated computer system, or finding the solution that allows you to keep your home.
How we can help negotiate your deferred mortgage
At Finance Mutual Australia, we negotiate and work with the banks on a daily basis to help our clients secure cheaper and more flexible loans. Our process is simple, first we learn about our clients, what their lifestyle, and financial needs are, and then we negotiate with the banks to find you the best deal. If you need a cheaper loan, please, contact us today.