- 10 Aug, 2020

$195 billion worth of home loan repayments deferred due to COVID-19

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According to the June figures released from the Australian Prudential Regulation Authority (APRA), 1 in 9 Australian home loan holders have chosen to defer their mortgage repayments through COVID-19 induced repayment holidays.

As of June 30, the total sum of deferred housing loans came to the sum of $195 billion, or 11% of total home lending.

The figure made-up a total $274 billion worth of loans granted for housing and small business repayment deferrals.

Related: What’s happening to homeowners who froze mortgage repayments?

Announced by the Australian Banking Association (ABA) in March, the repayment deferral or ‘mortgage holiday’ program was originally flagged to last 6-months.

Come July, the program was extended to last another 4-months (no later than January 2021), for any customers who are unable to meet their repayment obligations due to income loss linked to COVID-19.

“If you are granted an extended deferral period that is approved by your lender, your credit report will not be impacted” says the ABA.  

man checking reporting report on laptop while holding credit card

You might also like: ABA Confirms COVID-19 Repayment Holidays Won’t Impact Credit History

Since its announcement, authorised deposit-taking institutions (ADIs) have recorded a steady take-up of the program following its initial peak, though customers exiting the program has been comparably minimal.

In April, $170 billion worth of loans were approved for deferral. This was followed by another $45 billion worth of loans in May and an additional $40 billion worth of loans approved in June.

In contrast, between April and June 2020 $21 billion of loans were exited from deferral.

monthly repayments graph APRA

Source: APRA

Although home loans made up most of the total, small business loans were found to have a higher incidence of repayment deferral. As of June 30, 17% of the total share of small business loans was deferred, equating to $55 billion.

When comparing the ‘risk profile’ of different groups, the report showed investors to hold a large share of deferred housing loans, clocking in at 34%.  

In contrast, those with a loan-to-value ratio of above 90% held an 8% share of all deferred housing loans, a notable figure considering this group only makes up 5% of all loans.

“The housing risk profile shows that housing loans granted repayment deferrals are more likely to be extended to owner-occupier borrowers, subject to principal and interest repayments, and have higher loan to value ratios than all housing loans,” said the APRA report in its analysis.

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Deferral extension not automatic

When speaking on the extension of the mortgage holiday program in July, the ABA said that that the process “will not be automatic”.

Come September, those who are currently on mortgage holidays will be expected to resume repayments, unless they have negotiated an extension with their bank.

Related: ABA makes temporary changes to the Banking Code of Practice

“Those who are able to repay their loans will resume doing so, which is in the best interests of those customers and allows support to be directed to those who need it. Encouragingly, many customers have already chosen to resume making repayments,” said ABA CEO, Anna Bligh.

The ABA also noted that many customers may need less than four months to either restructure their loan or get back into full repayments.

As lenders implement the next phase of banking support , the ABA expects customers and lenders to ethically work together to find the right option for each situation, with lenders possibly employing extra staff to help meet the consumer demand.

You might also like: Repayments deferred but not forgotten: the truth about mortgage holidays

Words by Kathryn Lee

Sources:

ABA Banks enter phase two on COVID-19 deferred loans

APRA Temporary loan repayment deferrals due to COVID-19, June 2020

Are you struggling to keep up with repayments? Contact one of our home loan consultants to find out what home loan options are potentially available to you during these uncertain times.

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