Loan repayment 'holidays' top 100,000, but home loan 'discounts' disappear

Monday, 20 April 2020

Unemployment is rising fast, and all eyes are on how banks treat their customers.

Banks have become reluctant to give 'discounts' on their advertised interest rates when people come to refix their home loans.

And where once they would have automatically rolled over 'pre-approvals' for home loan finance if requested, they are now requiring would-be borrowers to prove their finances have not been altered by Covid-19 before they do so.

Banks have collectively agreed to a massive programme of loan repayment 'holidays' for customers, and have so far allowed over 100,000 household and business borrowers to make reduced repayments on their loans, or temporarily stop making repayments altogether.

But at the same time, the deals offered to people whose finances have not been impacted by the fight against the coronavirus pandemic have become less generous.

Banking has changed, with branches only open limited hours, and tens of thousands of people seeking loan repayment 'holidays'.

* Thousands of households granted Covid-19 mortgage holidays

The big banks have managed to handle a storm of requests from customers who need to reduce their loan repayments after seeing their incoems reduced as a result of the coronavirus lockdown.

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

* You can refix to a lower interest rate while on mortgage 'holiday'**

Mortgage broker Karen Tatterson from Loan Market said people with more than 80 per cent equity in their homes qualified for banks' advertised 'special' rates.

But the banks were now less willing to give borrowers discounts off their advertised home loan interest rates, which was a common practice before the coronavirus pandemic.

'For most borrowers we are getting the special rates, but no discount at this point in time,' Tatterson said.

The banks were also being less generous when it came to pledging money to help with borrowers' legal and moving costs, she said.

Tatterson said banks were also no longer simply rolling over 90-day home loan pre-approvals.

Before the pandemic, it was common for people to get pre-approval for loan funding that lasted for 90 days allowing people to go looking for homes with the confidence they had finance in place.

But Tatterson said banks were now requiring people to provide evidence their financial position had not changed in order for pre-approvals to be rolled over for another 90 days.

The coronavirus pandemic has turned lending on its head, with the bulk of new lending flowing to households and businesses struggling to make repayments on their existing loans.

With some households' income drying up altogether under lockdown, banks have allowed borrowers to take repayment 'holidays', where they make lower, or no repayments, for a period of up to a year.

Data from the New Zealand Bankers' Association showed that since March 26, when New Zealand moved to Alert Level 4, banks had collectively allowed just under 44,000 retail loan customers to make reduced loan repayments, such as only making interest payments on their home loans.

Another 42,000 had been allowed to defer all repayments of their loans for a period of time.

Deferred repayments would be added to people's loans, and would have to be repaid at a later date.

In total there was around $15.4b of loans on which people were now making reduced repayments, the association said, and $15.5b of loans on which borrowers were making no repayments at all.

The banks have allowed similar loan holidays to businesses. As well as making $5.5b of new business loans since March 26, the banks had collectively allowed just over 13,500 business customers to make reduced repayments on their debts.

Banks had agreed to allow just over 3000 other businesses to defer repayments entirely in a bid to survive the economic disruption caused by the fight against coronavirus.

Roger Beaumont, chief executive of the Bankers' Association, said: 'This is banks stepping away from revenue flows to do the right thing by New Zealanders.'

The business lending figures did not include taxpayer-backed loans under the business support scheme, he said.

Beaumont said it was encouraging to see that many households carried on making repayments, even if they were at a reduced level.

The scale of demand for one-on-one banker time from customers had been enormous.

Westpac said it alone had received around 19,000 applications for mortgage repayment deferral or reduction by the end of last week.