450,000 Australians are about to get a call from their banks as mortgage deferrals end

Hundreds of thousands of Australians are set to receive a call from their banks as loan repayment deferrals begin to end in September and October for some mortgage and business customers.

According to the ABA (Australian Banking Association), over 450,000 borrowers who arranged to have their loans deferred towards the start of the COVID-19 pandemic will be contacted by their banks in the next few weeks for a six month assessment. 

That number includes 260,000 mortgage holders and 105,000 small and medium business customers, with hundreds of thousands more likely to follow in the months ahead. 

“The loan deferral measure offered to customers by Australia’s banks has led to the largest ever customer contact process in the industry’s history, with an additional 5000 new or redeployed staff working to ensure customers understand their options,” said ABA chief executive, Anna Bligh. 

Is further payment relief available? 

So what options will be on the table when that call comes in? According to the ABA, that depends on the financial situation of the borrower:

• Normal repayments resume: Borrowers who are in a financial position to do so will need to start making their usual repayments again.

• Loan restructure: Customers who are continuing to experience financial problems will be able to work with their banks to find a solution. This could involve switching to interest-only repayments for a period or lengthening the actual loan term. 

• 4-month deferment extension: Some borrowers experiencing hardship may be offered a further repayment deferment extension of four months, though this won’t be available in every situation. 

Corporate regulator ASIC has also issued guidance to lenders about how they need to approach these conversations with borrowers. 

That includes ensuring that customers are given information that will help their decision making’ (e.g. any financial implications of a loan restructure or deferral) and making sure that the assistance offered is actually tailored to the individual customer, not just a broad-based solution. 

Is refinancing an option?  

One of the common tactics used by mortgage holders to reduce the size of their repayments or pay off their home loan faster is to refinance to a better value loan. 

But while refinancing may seem like an attractive option for many at the moment, is it actually possible for borrowers who have deferred their repayments? According to Mozo Property Expert, Steve Jovcevski, that depends on their financial situation. 

“Lenders take into account the financial position and recent repayment history of any new applicant in order to make sure they can service the loan,” he says. “So if you’ve deferred your repayments for the last six months, lenders are going to be able to see that your recent repayment history isn't there.  

“That doesn’t mean it’s impossible though, especially if you’re no longer in the same situation you were when you asked for that deferral in the first place - perhaps your hours at work have increased or you’ve got a new job, so you’ve been able to start making repayments again. 

“My advice before going to refinance with a new lender would be to get some repayments under your belt first, because two to three months worth of repayment history will give you a much better chance of getting a new loan approved.”

RELATED: Give yourself an instant pay rise by refinancing your home loan

For more information about the different types of financial relief on offer from banks and insurers, check out our comprehensive runthrough on everything you need to know about Coronavirus and your finances.