Article by Patrick Lynch, Head of Operations
Very recently – in a podcast here and article here – we discussed whether Australian Banks would have to provide further support to distressed Borrowers, before existing payment deferrals end later this year, to avoid a wave of potential defaults. Unsurprisingly, the Australian Banking Association (ABA) and major Banks have confirmed that they are implementing a new phase of support for Customers impacted by the COVID-19 pandemic.
The original loan deferral scheme was introduced in March and allowed Borrowers to pause mortgage payments whilst dealing with the financial impact of COVID-19. Anecdotally, many Borrowers have already chosen to resume repayments. In this new phase, the Banks have agreed to extend support on a case-by-case basis for those who require it.
According to the ABA, customers with reduced incomes and ongoing financial difficulty due to COVID-19 will be contacted directly. Rather than rely on this, customers could also proactively reach out to their Lender. If Borrowers cannot return to repayments or restructure/ vary their loan (e.g. extending the loan term or converting to interest-only repayment for a period) to support their current financial situation, they may be able to extend their repayment deferral by another four months (ending no later than 31 March 2021). We would expect the second-tier Banks and non-Bank Lenders, who could be more prone to defaults, to announce similar support.
As the Real Estate Institute of Australia (REIA) has noted, welcoming the Banking sector’s announcement, “supporting homeowners during this phase where they may be finding it difficult to continue paying their mortgage, is to be applauded”.
Potential purchasers will be interested to see whether they receive any additional support (e.g. changes in stamp duty or land tax) on top of already announced Government policy (e.g. First Home Loan Deposit Scheme and ‘HomeBuilder’). We also await further news on JobKeeper and JobSeeker for those with employment issues.
With this further Bank support, expect to see a repeat of the extended assessment times from the earlier phase due to the Banks again redeploying resources to assess need on a case-by-case basis. We could also see the Banks require higher loan loss provisions as the extent of Australia’s need and economic downturn becomes more apparent. Yet, there will also a chance for good clients to seek refinance or purchase opportunities.
Please reach out if you would like Long Property to review your situation or you need further details around this extended support.
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