July 14, 2020 by Dymphna

Bank holiday? You got another four months.

Banks have kicked the can down the road. You’ve got another four months.

In big news for the property market, the banks are extending mortgage freezes for another four months.

Currently about half a million mortgages are on ice, with repayments temporarily frozen.

This is substantial. It’s close to 10 percent of the market.

And there was a fear that when the freeze ended, and households suddenly had to come up with the cash, a lot would get into trouble. Mozo has a survey:

Almost half of all homeowners (43 per cent) will struggle to meet their loan repayments after their JobKeeper payments end, according to Mozo.

And, with the Australian Banking Association reporting that $175.5 billion in loans has been paused due to Covid-19 hardship, that means the potential default figure could be up to a whopping $75 billion.

… The research also found 53 per cent of mortgage holders were worried they could be forced to sell their home if they’re unable to meet their repayments in six months.

What’s more, 38 per cent of Aussies on JobKeeper said the payment wasn’t enough to cover their current bills, let alone when the payments would end in September.

“It’s clear the Federal Government’s JobKeeper payments are proving a vital lifeline for many paying down their home loans. But when these payments end and the banks’ eventually turn off the hardship support tap, the mortgage market could start to crumble,” Godfrey said.

But it now looks like we might dodge that bullet, or at least kick the can down the road for another four months.

So it’s good that banks are talking to their customers and that they’re willing to extend mortgage holidays.

But really, this is a government initiative. It comes from APRA – the banking regulator.

Because remember that if loans become ‘impaired’ – if people fall behind on their payments – then banks face a ‘capital impost’. That is, they have to keep more money aside – have less money floating out and about in loans etc – to provision for these bad loans.

Specifically, they have to come up with a bunch of cash. And if enough loans go bad at the same time, the banks will have to come up with more money than they’ll be able to, and then you’ve got a banking crisis.

So that’s a real danger to look out for.

But for the moment, APRA has said they’re not going to force the issue – at least not for another four months.

Australian banks have been given a reprieve from strict loan reporting rules and will be allowed to extend payment holidays or restructure loans up until March 31 before facing any capital impost, the prudential regulator confirmed on Wednesday morning.

The confirmation of the waiver follows the announcement that lenders will extend the repayment holidays of customers who have deferred home loans or business loans for up to another four months if they need it.

Australian Prudential Regulation Authority chairman Wayne Byres confirmed that deferred loans that are extended or restructured before March 31 would be regarded as “performing” for capital and regulatory reporting purposes in the announcement.

So, the mortgage market remains in limbo.

For now, we’re not headed for a crisis.

But we’re not out of the woods yet either.