Loan deferrals trending down, but are Aussies in the clear in 2021?

Loan deferrals were among the most significant measures introduced last year to keep households and businesses afloat, but data from the Australian Prudential Regulation Authority suggests the number of borrowers who need them is trending down.

The latest figures from the government regulator reveal that $60 billion worth of business and home loans were still on hold as of 30 November, meaning 2.3% of all loans in Australia were not currently being serviced.

But the number of loan exits has exceeded new entries for the fifth month in a row, with a total of $32 billion in loans expiring or exiting deferral compared to only $7 billion entering or being extended.

Banks introduced the deferral schemes in March 2020 as uncertainty surrounding the pandemic reached a fever pitch. Uptake peaked in May, when 10% of all borrowers in Australia had arranged to pause repayments with their lender.

Home loans make up the bulk of all deferred loans, with $49.5 billion out of a total $1.8 trillion worth of mortgages subject to deferral in November. SME customers account for considerably less, with $7.6 billion in business loans out of a total $322.3 billion deferred.

Victoria continued to record the highest number of repayment deferrals, with its extended lockdown bringing the number up to 3.2%. For comparison, only 1.7% of loans were deferred across all other states and territories. 

While the number of borrowers who have resumed repayments might give the impression that household finances are on the mend, Australian Banking Association chief executive Anna Bligh cautions against being overly optimistic.

“Banks have said very publicly and very honestly, that for some of their customers 2021 is going to mean facing some pretty tough decisions,” she told ABC radio late last year.

She added that there will be circumstances “where it is in the best interest of the customer to put their property on the market, realise the equity they have in it and restore themselves to financial well being.”

Customers who are struggling are advised to contact their bank and make use of the financial hardship services available. For an overview of other support measures, along with handy tips to keep your finances in good health, browse our coronavirus financial guide.