- Australian borrowers will be given another four months off from making loan repayments to their bank.
- The Australian Banking Association (ABA) confirmed on Wednesday that borrowers in demonstrable financial difficulty will be able to defer until January.
- However, the extension will be granted on a needs basis, with many borrowers expected to come to other debt servicing arrangements with their lender.
- Visit Business Insider Australia’s homepage for more stories.
Australia’s banks will kick the can down the road a while longer as customers continue to struggle to pay them back.
In March, banks agreed to allow customers experiencing financial hardship as a result of COVID-19 to stop making repayments on their business and home loans for a period of six months.
On Wednesday, the Australia Banking Association (ABA) confirmed the sector had agreed to allow a four-month extension of the repayment freeze.
“This next phase of bank support will avoid a ‘cliff’ for customers in September and give them the breathing space they need to work with their bank and get back on their feet financially,” ABA CEO Anna Bligh said, noting more than 800,000 customers have deferred their payments since March.
“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.”
With banks anxious to get customers chipping away at some $260 billion in mortgage and business debt, it will not be a blanket extension granted to all customers. Instead, all customers experiencing financial difficulty will be contacted by their bank, Bligh confirmed, as they approach the end of their original six-month deferral period.
Customers who are able to begin making repayments in some capacity will recommence doing so. Those who cannot will be allowed to defer as far ahead as January, with the expectation they work with the bank to “find the best solution for them”.
Customers who take another extension may be asked by their bank to extend the total length of their loan, consolidate debt, convert to interest-only payments for a time, or seek other measures to see them through this “distressing time”.
“Encouragingly, many customers have already chosen to resume making repayments,” Bligh said.
However, as Business Insider Australia reported last month, the some customers are on more solid footing than others. Some banks have managed to get as many as a third of deferrals to resume repayments of some kind. Others have struggled, with just one in ten opting out of a repayment holiday.
Of course, the ability to do so is wholly dependent on the financial standing of customers. While government measures like JobKeeper and a boosted JobSeeker have managed to put a floor under impacted Australian workers, the Morrison government has repeatedly stressed both are temporary.
In tandem with the repayment freeze, such policies are helping to artificially prop up the labour market and the broader economy during, what the RBA described on Tuesday as, “the biggest contraction since the 1930s”.
The Australian Prudential Regulation Authority (APRA) said the extension will help avoid a slew of defaults.
“We are fortunate that the Australian banking system has the balance sheet strength to be able to provide ongoing support to customers temporarily impacted by COVID-19,” APRA chair Wayne Byres said.
“This will help to avoid unnecessary hardship and foreclosures, and allow the banking sector to work with its customers to find the best solution to manage their debts.”
The move, however, again raises the question of what will eventually happen to this veritable mountain of debt and the property market it is tied up with, if in January if Australians are still not back on their feet.
With it being in no one’s interest to see that debt go bad, it may not be the last extension to come.
- 3 months ago, Australia’s big banks started freezing $176 billion worth of mortgages. Now they’ve begun to thaw.
- Australian property price falls are accelerating as the country hurtles towards a ‘fiscal cliff’
- These 5 charts show why Australian homeowners and investors are increasingly nervous about the coronavirus
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