Banks kick can on mortgage repayment cliff

I noted earlier this week how Australia was facing a mortgage repayment cliff in September given 480,700 mortgages have been deferred for six months by Australia’s banks worth $173.5 billion:

That equates to around one in 14 mortgage holders, according to the Australian Bankers Association.

Now, it’s been revealed that the banks will extend relief to struggling mortgage holders by shifting loans to interest-only:

Three of the major banks – Commonwealth, ANZ and Westpac – will now allow more home owners to switch to an interest-only loan for a year, or extend their existing interest-only payments under loosened criteria.

“Banks have said we will relax and give people greater access to interest-only,” Steve Mickenbecker, group executive for Canstar said.

“If you’re already in an interest-only loan we’ll extend it by 12 months without asking too many difficult questions and if you’re looking to transfer into it for a period of 12 months, well we’ll ask a few more questions but we’re making it more accessible”…

According to figures provided by Canstar, a home owner with a $400,000 home loan over 30 years is expected to save about $476 every month for 12 months through interest-only, compared to a tradition principle and interest repayment.

While this move will help at the margin, the bigger problem will arise if the Morrison Government implements a hard stop to income support, including JobKeeper and JobSeeker.

Leith van Onselen

Comments

    • Jumping jack flash

      For sure. Banks love IO more than I+P, but they will surely twist this to say that banks are making sacrifices to help. They only ever help themselves.

  1. The banks can see the future – and it’s not pretty.

    Extend and hope for the best.

    • some will cave in a call in the loans while they can. This will hurt the others and force their hand

    • More like extend and gradually start pressing people to sell. This way we won’t see 50% fall in six months but rather stretched over 3 years.

      • DominicMEMBER

        The Govt is ultimately trying to prevent the dominoes from falling – once they start it will be tricky to rein in.

      • Many home borrowers have already fixed their interest rate at the very low fixed rates on that have been on offer, they are are already locked principal and interest and I don’t believe that can be changed, also the ones that can extend interest only will be variable would be my guess because they won’t get approval for more than a 1 year fixed rates
        Home loan interest rates are going to rise this year which will have the same effect
        They can try any scam it won’t work, Australia’s house hold debt has started the huge delveraging
        Even Even Even interest only most of them won’t be able to even afford that
        The snowball has started rolling and nothing is going to stop it

        Even those on interest only will still try and sell, there will be no buyers, first home buyers are on commsec & nabtrade.
        It’ll be an offshore shock that drives the downturn
        The crash is still on…..
        Don’t be fooled by smoke and mirrors

    • You jest, but I reckon that is the belief of many punters.

      I have a young relative who’s only collateral for his mortgage was mother as guarantor.Both mother and young relative were of the firm belief that it was risk free because they don’t actually have to pay off the loan – just pay the interest and then sell the house for a profit when they’ve paid that.

  2. Mr SquiggleMEMBER

    Won’t this need some sort of agreement from APRA? It sounds like a return to preRoyal Commission Standards

      • Yep – the alternative is large in arrears loans and a big capital deficit for the banks.

    • DominicMEMBER

      Are the people at APRA on performance bonuses or are they Gubmint simpletons in gold-plated jobs?

    • APRA has agreed, along with some other things such as exempting the banks from having to hold extra capital against falling mortgage book value.
      Martin North went through this in one of his most recent videos.

  3. Is it multiple choice questions?
    I hope one of the questions is:
    “who on earth approved this massive loan you now cant pay?

  4. Just smart credit credit management really? whats the alternative, force default on an asset you don’t want to reposes on mass?

    • Yes that’s the alternative after you try to force them to sell. The aim is to get out quick before others while prices are still high. Otherwise your stuck in an IO loan with principle going nowhere on a place that’s losing value

      • GlendaFMEMBER

        Not if the numbers are either not reported or ‘fixed’ before being reported….
        Some of these people who will jump at the chance of an IO loan for 12 months will never understand that their equity is disappearing until they try to sell….
        So now we are not looking at 6-12 months but back to 18 months…

  5. Shades of MessinaMEMBER

    How long until the government legislates that punters must be given the option for IO or P+I for as long as they like ?. No caps on IO loans for banks to apply.

    • GlendaFMEMBER

      Does an IO loan forever change any of the banks captial or other requirements?
      Coz of not, then they’ll do it until they’re told not to anymore…

    • They still have to comply with responsible lending.

      But I can see I/O periods being rolled for the foreseeable future.

  6. bolstroodMEMBER

    While this move will help at the margin, the bigger problem will arise if the Morrison Government implements a hard stop to income support, including JobKeeper and JobSeeker.
    Enter Matt I’m alright Canavan

    • DominicMEMBER

      At this point, bols, that’s the course we’re headed down. I personally think there’ll be a last minute re-think as the prospect of the ‘cliff’ becomes real.

      • Jumping jack flash

        Agree completely.

        At face value the government has “just” 0.5 trillion debt dollars. In contrast their people hold 2.4 trillion. A bit of an imbalance. I think the government could at least triple their debt to enable their people to double theirs. The benefits to the economy would be profound.

        Im surprised the banks havent mentioned it yet.

  7. ooooo… “According to figures provided by Canstar, a home owner with a $400,000 home loan over 30 years is expected to save about $476 every month for 12 months through interest-only”

    Fine line calling that “expected to SAVE about..” Do they really save or does their total interest payable actually increase and they don’t save money at all?

  8. Won’t make any difference….
    They can come up with any scam they like
    Interest only, extend loan for 50 years what ever
    This is sheer desperation & panic
    Will not make any difference
    The snowball has already started rolling

  9. Jumping jack flash

    This is all completely expected as well as the rebranding and extension of jobkeeper with more QE.

    I also suspect homebuilder to be extended. NIRP to lower interest rates soon.

    They HAVE to get the debt growing again! Houses are the biggest debt bucket they have.