Banks promise Covid-19 mortgage holidays won't reduce credit scores

Thursday, 9 April 2020

People taking Covid-19 mortgage holidays will not have their credit scores downgraded after a deal between banks and credit surveillance bureaus.

'Anyone who has deferred their mortgage repayments for up to six months because they are financially impacted by Covid-19 will not have their credit rating affected as a result of the deferral, provided they were not in arrears before the pandemic,' Bankers' Association chief executive Roger Beaumont said.

Tens of thousands of households have inquired about, and begun mortgage holidays after experiencing income drops thanks to the economic disruption caused by the fight against Covid-19.

Ordinarily, this would have resulted in their credit scores, which run from zero to 1000, being reduced.

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Credit scores are calculated by credit bureaus, including Ilion and Centrix, based on payments information passed to them by the likes of banks, insurers and power companies.

A person with a poor credit score could find it hard to borrow money, or have to pay more for loans.

But, Beaumont said: 'This agreement means those customers won't have their credit ratings negatively impacted for the period they're not making repayments.'

'Given the extraordinary circumstances it seems fair that individual credit ratings are not affected by a pandemic-related mortgage deferral.'

'This only applies to customers who were up to date with their repayments before Covid-19,' he said.

'There may be other factors that can affect a customer's credit rating, including if the customer was already in arrears before applying for a mortgage deferral, so we encourage customers to talk to their bank early if they're finding it hard to keep on top of things.'

'We acknowledge the support of the Reserve Bank in facilitating this initiative. They have helpfully agreed that banks can treat deferred loans as performing,' Beaumont said.

Mortgage deferrals were one of a number of ways banks could help customers in need.

Others included:

* Reducing or suspending principal payments on loans and temporarily moving to interest-only repayments.

* Providing loans to businesses under the Business Finance Guarantee Scheme.

* Helping with restructuring loans, for example extending the term of the loan.

* Consolidating loans to help make repayments more manageable.

Concerns had been bubbling for the last two weeks that individual's financial reputations could be ruined by sudden drops in household income making it impossible for them to pay their home loans.

In the first week of the lockdown, one credit bureau, Centrix, had already had a protocol in place to make sure this did not happen.