Australians can once again freeze their home loans, as the banks try to avoid a wave of lockdown defaults

Banks are trying to stop a wave of mortgage delinquencies as workers bear the brunt of lockdowns. (James D. Morgan, Getty Images)
  • Australian banks have restarted their loan deferral programs, enabling borrowers to put off their repayments during the most recent lockdown.
  • Impacted mortgage holders can now pause and reduce repayments or restructure their loans are part of a new relief program, while businesses will be presented with additional options.
  • The three local government areas (LGA) at the heart of Sydney’s latest outbreak were already the most behind on their mortgages prior to the latest restrictions.
  • Visit Business Insider Australia’s homepage for more stories.

Australia’s banks have again been forced to freeze home loans for those who need it, just three months after they declared a victorious end to the 12-month program.

From Monday the Commonwealth Bank, Australia’s largest, will pause repayments for affected borrowers for an initial period of two months.

As Sydney enters its fourth week of lockdown, and Victoria decides whether to extend state-wide restrictions, the bank said it was focused on all impacted customers, but “especially those in the Fairfield, Liverpool and Canterbury-Bankstown Local Government Areas (LGAs) of Sydney, New South Wales, and in the construction and discretionary retail sectors.”

“I want to assure all of our customers across Australia who are today facing tighter restrictions that support is available right now,” CEO Matt Comyn said.

Other banks are following suit, offering reduced payments, temporary pauses, and loan restructures to affected borrowers as part of the broader push within the sector to soften the financial fallout. Customers who are facing hardship are being told to get in touch with their financial institution as soon as possible to access support.

“We know every situation is different and our business bankers are checking in with customers to see how they are doing and what help they might need for their situation,” NAB CEO Ross McEwan said.

While McEwan said the lockdowns were necessary right now, he urged Australians to get vaccinated as quickly as possible to reduce the need for future restrictions.

Westpac has announced extra measures for business customers to ease cashflow concerns, including overdrafts of up to $15,000 that are interest-free for 45 days, in addition to deferrals.

“The government’s comprehensive support package will make a big difference to many businesses and help keep Australians employed,” CEO Peter King said. “The temporary overdraft will support this process and address cash flow needs in the interim, ensuring our small business customers get access to funds sooner.”

It marks the latest effort by Australian lenders as they again grapple with the risk of rising bad loans.

“More businesses, construction workers and tradies will be unable to work in the coming weeks. If they are struggling financially, the best thing they can do is call their bank,” Australian Banking Association CEO Anna Bligh said in a statement.

The previous year-long program saw 99.5% of borrowers return to their repayments by its end. As state governments race to contain the current outbreaks, lenders are again anxious as to what damage lockdowns may wreak on their loan books.

Lockdown to hit vulnerable borrowers

Over the weekend, New South Wales tightened up restrictions to close non-essential retail and pause construction projects for two weeks, among the strictest orders since the pandemic began.

While there are suggestions the Berejiklian government could soften its stance on the construction sector, it places a significant number of Australians under renewed financial pressure, at the same time that government support continues at reduced levels.

The lockdown is already affecting higher-risk borrowers. Data from Domain showed that residents in Sydney’s southwest were already the most behind on their mortgage repayments going into this year.

Chullora has the highest mortgage delinquency rate in Greater Sydney, with 1.37% of all borrowers past due on their repayments, or more than two and a half times higher than the rest of the city.

Neighbouring Punchbowl, Roselands and Belmore join it in the top ten areas under mortgage stress. As do the Liverpool suburbs of Ashcroft, Green Valley, and Kemps Creek, and the Fairfield suburb of Cecil Park.

Residents in each are now not permitted to leave the area unless they are classified as an authorised worker. Those in Fairfield meanwhile are required to be tested every three days if they do leave.

While not subject to the same restrictions, Double Bay residents, who live just minutes away from the epicentre of the eastern suburbs outbreak, rank fifth in mortgage delinquencies.

The ABA says anyone can be eligible for the new relief program, regardless of geography or occupation.

But it’s these residents that right now now represent the biggest risk of default.