The move will extend the mortgage deferral terms for up to four months, giving mortgage borrowers a reprieve before they have to start repaying their loans.
ABA chief executive Anna Bligh said the new phase of support would avoid creating a financial “cliff” for customers in September and allow them extra time to get back on their feet financially.
“Australia’s banks supported their customers as the country entered the COVID-19 crisis and they are determined to support their customers on the way out of the crisis,” Bligh said.
However, the deferral extension will not be automatic; it will only be available to those who are genuinely in need of extra time.
“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,” she urged.
Customers are encouraged to restructure or vary their loan before resorting to the payment deferral. Restructuring options include extending the length of the loan, converting to interest-only payments for a period, and debt consolidation.
The ABA also confirmed that customers granted an extended deferral period, as well as those who have recommenced repayments of their existing loan, will not have their credit report impacted.
The news comes after the banks agreed to the six-month home loan payment holiday launched in late March.
ANZ, Westpac Encourage No Delay For Loans Repayments
In a statement on July 8, ANZ said that those who were yet to apply for loan repayment deferrals are still able to access the original support package.
The bank made it clear that customers who took advantage of payment holidays but were unaffected by the crisis would not receive an extension.
“Customers on existing loan repayment deferrals who have not been financially impacted by COVID-19 will be required to begin making normal repayments at the conclusion of their six-month deferral agreement,” ANZ said.
On the same day, Westpac’s chief finance officer, Gary Thursby, said the bank would offer “tailored assistance” to customers, including granting an extension to the deferral for up to four months on a case by case basis.
But he also urged those who could get back to repayments not to delay.
“A significant number of customers will be able to resume regular repayments when their deferral term ends,” he said in a statement. “We expect these customers to start their repayments again, and we would encourage as many people as possible to do so.”
As of June 19, nearly 800,000 loans, including 485,063 home loans and 216,372 business loans, had their repayments deferred due to pandemic-induced hardship, according to ABA data.
Bumpy Recovery Ahead
The announcement on the extensions came one day after the RBA board decided to keep the cash rate at a record low of 0.25 percent amid an outbreak of COVID-19 cases in Victoria.
RBA governor Philip Lowe said despite leading economic indicators improving, the outlook remained uncertain and the recovery is expected to be bumpy.
“Uncertainty about the health situation and the future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans,” Lowe said.