Banks told: Don't charge interest on mortgage holidays

Thursday, 2 April 2020

New Zealand banks should use their profits to write-off the interest accrued while borrowers are on mortgage holidays, one economist says.

Geoff Simmons, who is also leader of The Opportunities Party, welcomed the Reserve Bank call for banks not to pay dividends to shareholders until the economy recovered from the hit of Covid-19.

But he said they needed to go further and use any profit they made this year to pay the interest that homeowners were charged while on repayment holidays.

Banks have agreed with the Government to offer borrowers six-month breaks from repayments if they suffer an income blow from Covid-19. But interest still adds up over this period so the loan becomes more expensive overall.

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Simmons said it was not a true holiday. 'More like one where there's emails piling up while you're sitting on the beach.

A mortgage holiday isn't really a break if interest is still being charged, Geoff Simmons says.

'In the past few years the big four Australian banks made $20 billion revenue per year in New Zealand. According to their books, about a quarter of their revenue - $5b - was pure profit. We mustn't forget that New Zealand has historically been home to the most profitable banking system in the world. ANZ, Westpac, ASB, and BNZ have made a mint off us and our mahi.'

'Make no mistake, Covid-19 has caused a new, unprecedented economic reality. Everyone is forecasting the same thing: we'll see more people unemployed than as a result of the global financial crisis.

'Based on previous years' results, if the banks decided to forego their profits for a year, they could afford to give all New Zealanders a three-month interest holiday. This would be a real holiday – one where that debt isn't waiting for you, or compounding and getting worse, over the life of a mortgage. That may not solve our impending economic spasm, but it'll sure give every Kiwi homeowner a fighting chance.

'With the banks providing a true mortgage holiday, the Government could mandate that landlords pass this benefit on to renters so that they could have a rent holiday. Not only would it not hurt the underlying fundamentals of the Australian banks, it would show a gesture of goodwill that we are all in this together.

'These are unprecedented times and unprecedented measures. The Government has provided a welcome wage subsidy package. We need banks to show their commitment to the New Zealand public by providing real, much needed, financial relief.'

But New Zealand Bankers Association chief executive Roger Beaumont said the banks were not making money from the mortgage holidays.

'Last week we announced that New Zealand's retail banks are offering mortgage repayment deferrals. That means that affected customers who apply to their bank will not make principal and interest repayments on their loans for up to six months.

'That represents immediate financial relief for many customers. Banks do not profit from this. In fact, they cover the cost of providing that credit for the period of the deferred payments.

'Customers also have other options available, including asking their bank if they can move to interest-only repayments.'