Are you currently on a loan holiday?
Borrowers who opted to take up a six-month mortgage “loan holiday” may get a call from their bank or broker asking if they can re-start payments from as early as next month – and experts say that is a good thing.
Banks began offering the deferral scheme from March 27 after reaching an agreement with the Government.
The deal enabled banks to allow customers to reduce or suspend mortgage repayments for up to six months, without the Reserve Bank considering those loans to be non-performing when assessing bank solvency.
The interest on the loans continues to accrue.
More than 113,000 borrowers have either reduced or deferred loan payments on consumer debt – the bulk of which will be mortgage debt – worth $38.2 billion as of Monday, latest figures from the New Zealand Bankers Association show.
Bruce Patten, a mortgage broker at Loan Market, said his company would start contacting all clients that went on to interest-only or payment deferrals in June to see how they were doing and if they either needed further assistance or wanted to go back to normal.
“I would assume the banks will start doing the same, especially as a lot of branches have not fully reopened yet, so they have resources to do this.”
Patten said some banks only gave an initial three-month loan holiday deferral with the ability to push it out another three months if they needed to.
“I listened in on several calls with clients with their banks when they phoned to discuss the impacts and in some cases they gave the clients the option to start with three months if they wanted.”
Patten said it was in the best interest of borrowers to restart payments as soon as possible.
“It’s in the best interests of the clients to start up their payments again if their income is back to normal, because it will save them thousands of dollars in the long run.”
Tom Hartmann, money editor at the Commission for Financial Capability, the Government’s financial education arm, said banks would be doing their customers a favour by checking to see if they could restart payments sooner.
He said it had heard from some borrowers who had already worked out how much the deferral was costing them.
“What we are hearing is borrowers are starting to roll off [the deferral].”
Hartmann said while the deferrals were initially painted as a “holiday” with positive connotations that was far from the case.
He said some were choosing interest-only payments instead as it kept the debt more sustainable.
“We are seeing interest from borrowers in rolling off the deferral or shortening the term.”
But he said for those in tough circumstances it was still appropriate to use the deferral option.
“For someone who might be out of work and not able to make mortgage payments the idea would be to get back on their feet and pick it up again.”
Loan Holiday Second Wave
Patten said the number of inquiries for those wanting a loan deferral had significantly reduced in recent weeks but he expected it to pick up again.
“We expect the next time will be when the wage subsidy finishes and as the six months rolls around when someone has lost their job.”
Hartmann said those who had initially opted for the deferral were likely to have been affected by the pandemic straight away.
“Then there is another part of the population who are at risk.”
He said an increase in applications would likely be linked to a rise in redundancies.
“It’s not necessarily connected to the wage subsidy but as people’s situations change … some people might get a severance package and be able to keep up their mortgage payments until they roll into another role.”
But those with a low savings buffer and who saw an interruption in their income would be most at risk.
An ANZ spokeswoman said after strong interest in deferrals when they became available, the number of requests had substantially slowed and it had seen requests from customers to exit the arrangements.
The bank was reluctant to speculate on any future demand for the loan holiday deferrals.
“We are continuing to monitor borrowing, but the situation is unprecedented and we recognise that circumstances could continue to evolve.”
New Zealand Bankers’ Association chief executive Roger Beaumont said there was no cut-off date for mortgage deferral applications unlike the Business Finance Guarantee scheme which has an application deadline of September 30.
“There’s no stated deadline for mortgage deferral applications, and they’re offered to customers with home loans who are financially impacted by Covid-19.
Beaumont encouraged borrowers who had deferred their loans to keep in touch with their bank if their circumstances changed.
“It’s in borrowers’ interests to start repaying their loans as soon as they can. That may be before the loan holiday deferral period ends.
“Banks may also contact customers who have deferred mortgage repayments, to see how they’re going and to discuss their options.”