Some banks will ask customers to dip into their super to pay back frozen mortgages. They should tread carefully, the regulator warns.

Australians may be encouraged by lenders to dip into their superannuation to pay their mortgage back. (Tim Graham, Getty Images)
  • Regulator APRA has revealed some Australian banks plan on pushing customers to withdraw their superannuation early to make repayments on their loans.
  • Australian borrowers could potentially withdraw up to $10,000 of their superannuation this financial year under the federal government’s scheme to pay back their debts.
  • It comes as lenders consider how they are going to get borrowers to restart repayments on $240 billion in deferred loans.
  • Visit Business Insider Australia’s homepage for more stories.

The watchdog has put the banks on notice over the mountain of debt around one in nine Australians have frozen in the wake of the pandemic.

Having reviewed the banks’ plans to thaw the debt, the Australian Prudential Regulation Authority (APRA) and others have appraised their ideas on how to transition borrowers back to repayments. While there’s clearly a need for some creative thinking to get customers back servicing $240 billion of debt however, one strategy may come as a shock to some struggling customers.

“ASIC notes that some plans included reference to borrowers accessing their superannuation as an option that could potentially be considered if borrowers are unable to resume repayments,” Therese McCarthy-Hockey, executive director of APRA’s banking division, wrote in a letter to lenders.

They are not the first ones to try that ploy, with real estate agents, franchises and even private schools all having flogged the same horse.

While not necessarily considered inappropriate, APRA did have some words of caution.

“[Lenders] should have appropriate controls in place to ensure that if they are informing borrowers about their ability to access superannuation, they are not providing unlicensed financial product advice,” McCarthy-Hockey wrote.

More broadly, APRA underlined the seriousness of bringing borrowers back into the fold and working through their financial difficulties.

“Successful implementation of these plans remains a critical risk for both [institutions] and borrowers,” McCarthy-Hockey wrote.

With 650,000 borrowers to be unable to make repayments at the end of this month, APRA underlined the need to respond quickly to any problems with customers.

“Any such issues should be immediately shared with APRA and the Australian Securities and Investments Commission (ASIC).”

To deal with the one in five customers who are not even answering phone calls, the banks appear as if they will simply restart their repayments.

“Where repayments are to be recommenced for these customers without contact, better practice involved close monitoring the performance of these loans, and additional contact strategies where payments are subsequently missed,” McCarthy-Hockey said.

For those who cannot begin repayments again, deferrals can be extended to January, their loan can be restructured, they can enter hardship provisions, or ultimately, they can default.

Given the amount of frozen debt, and the proportion of borrowers who have claimed hardship, it’s clearly a concern for lenders and regulators alike. In order to prevent loans from turning bad unnecessarily, banks are expected to more closely assess borrowers, spend up to six weeks working out arrangements and quickly escalate concerns to “senior management”.

Serious business when there’s $240 billion at stake.