Australia’s banks expect over 650,000 people will need to defer their mortgages until 2021

Australia’s banks are reviewing billions of dollars worth of frozen home and business loans. (Valery SharifulinTASS via Getty Images)
  • Australian banks will call around 450,000 customers in the coming weeks to reassess hundreds of billions of dollars worth of loan deferrals.
  • With the initial deferral period to conclude at the end of September, customers will need to either start repayments again in full or in part, move to interest-only loans, or defer as far as January.
  • It’s expected around three in four deferrals will remain in place going into September.
  • With unemployment expected to rise in the coming months, and with government support set to be slashed, it’s unclear how many customers will be in a position to repay by January.
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Australia’s banks are undertaking the single largest nationwide correspondence with customers in the industry’s history.

In new industry figures released on Monday, the Australian Banking Association (ABA) revealed 450,000 borrowers would be contacted in the coming weeks as the banks try to keep on top of their deferral arrangements.

In total, 900,000 Australians have frozen $274 billion of debt, amounting to one in nine mortgages and one in six small business loans. The mountain of debt that is set to thaw at the end of month as deferments expire.

“Customers know what’s best for them. It’s the bank’s job to set out all the options and implications and ensure customers have the information and the time to make the right decision to suit their needs,” ABA CEO Anna Bligh said in a statement.

While banks are encouraging customers to begin paying back the loans, many are simply not in a position to do so.

By the end of July, Australians had recommenced repayments on just 13%, or roughly one in seven, of those loans, worth $41 billion. According to some bank estimates, another 100,000 customers are expected to have been welcomed back into the fold in August.

It would suggest that three in four deferred loans, or more than 650,000 deferrals, aren’t going anywhere, amounting to roughly $200 billion in debt that can’t currently be repaid.

Those customers will be given several options, according to Commonwealth Bank CEO Matt Comyn, including making partial repayments and transitioning to interest-only loans.

Others will have no other alternative than to defer repayments for a further four months, taking them into January 2021.

However, while another deferment will give customers and banks alike breathing room, it won’t alleviate the unavoidable fact that at some point these loans will need to be repaid.

Therein lies the problem central to the deferral scheme. Real unemployment currently sits in the double digits and is set to rise by the end of the year. Meanwhile, as government support will be slashed going into the next one, the financial situation of most borrowers is in fact set to get worse, not better.

For example, Commonwealth Bank figures indicate 14% of loan deferrals have been made by Australians receiving JobSeeker.

APRA figures show deferral numbers are actually going up, not down.

While banks have talked up their loan books – with some looking superior to others – progress is slow going.

In fact, the latest APRA figures indicate that the number of customers recommencing repayments has been so far dwarfed by the number of new deferrals, suggesting the deferral program is actually growing.

Without material improvement in the economy and thus the labour market, it appears unlikely that dynamic is going to change by January.