More support on the way as banks extend mortgage holidays for struggling borrowers

Australian banks will be extending support for struggling customers, announcing today that borrowers who have paused loan repayments will be able to defer for an extra four months.

While banks have reported that many retail and business customers have resumed loan repayments at least partly, there are thousands more that are facing ongoing financial difficulties.

With only a few months before JobKeeper and JobSeeker payments unwind, the outlook for the nation’s mortgage holders seemed uncertain. Today’s announcement should quell some of the concerns a worse crisis is around the corner. 

“This next phase of bank support will avoid a ‘cliff’ for customers in September and give them the breathing space they need to work with their bank and get back on their feet financially” said Australian Banking Association CEO Anna Bligh.

To date, some 800,000 Australians have taken advantage of the loan deferral scheme, totalling $260 billion in loans. In an interview this morning, Treasurer Josh Frydenberg said that around 60% of those are residential mortgage loans.

“[The banks] know that their customers need to get to the other side of this pandemic, but it’s going to be a struggle in the weeks and months ahead,” he said.

“That’s why they put in place the original six month loan deferral program. That’s why they’re now extending it for another four months.”

Who will the decision apply to?

Importantly, the option to extend the deferral period is only available to those in dire need. Extensions will not be granted automatically — rather, banks will assess individual customers when their current deferral is expiring.

“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. Encouragingly, many customers have already chosen to resume making repayments,” said Bligh.

Banks will also work closely with customers to restructure or vary loans. This may involve extending the loan term, converting to interest only payments for a specific period, or working to consolidate debt.

If customers are unable to resume payments once the deferral period ends, they will be able to apply for their bank’s hardship process, which will help devise a long-term solution that suits their individual circumstances.

RELATED: $75 billion blowout averted by banks’ mortgage holiday extensions

NAB CEO Ross McEwan said the changes will give those who have been hard-hit by the coronavirus pandemic some time to get back on their feet.

“The recent news of increased COVID-19 detection has brought additional uncertainty to many businesses, individuals and families. Many are doing it tough – and banks play a critical role in providing support,” he said.

Commonwealth Bank CEO Matt Comyn, whose bank has granted deferrals on almost 130,000 home loans, said customers will be contacted over the coming months to discuss how they are faring.

“Supporting customers who continue to experience financial difficulty is a priority and we are tailoring our support to make sure each customer gets the advice and assistance that suits them,” he said.

For more information about the assistance available to households and businesses, along with tips to keep your finances in good health amid the current crisis, browse our guide to coronavirus and your finances.