Households already coming off home loan 'holidays', banks say

Thursday, 21 May 2020

Households taking home loan 'holidays' will end up paying more in the long-run.

Some households which went on mortgage repayment 'holidays' in March and April have already voluntarily resumed full repayments again, banks say.

That included 1000 at Westpac, and a high proportion of those coming to the end of two-month repayment holidays at the Co-operative Bank.

'We've already had some of them reach their first end dates, two months for some of them,' Co-operative Bank chief executive Daving Cunningham said.

'We've had 16 reach their end date, and 14 of those rolled back to normal payments,' Cunningham said.

* Thousands of households granted Covid-19 mortgage 'holidays' by ASB

Westpac says around 1000 people who took home loan repayment holidays have ended them and resumed full monthly repayments.

* Kiwibank, Westpac, ANZ and BNZ report high demand for mortgage relief

The economic disruption caused by Covid-19 led to many households experiencing drops in income, and banks responded by allowing them to take a temporary break from making repayments on their home loans, or to make smaller payments than they ordinarily would.

At the end of Monday, 59,237 bank borrowers were making reduced repayments on their home loans, or other loans, and 53,779 were on complete repayment holidays, figures from the New Zealand Bankers' Association showed.

'We were really early into the mortgage holidays, probably a week or two in advance of the industry, and as the Reserve Bank rules changed, we adapted and made the process simpler. At the end it was pretty much 'you ask, you get',' Cunningham said.

Cunningham was encouraged by the proportion resuming repayments.

'I expect we will see a lot of customers roll off that deferral quite early.

'It would be good because it means they have got their finances back in shape, and from a bad debt perspective, it reduces that risk from our perspective.'

Both ANZ and Westpac were seeing households opting to end repayments holidays, or reductions voluntarily earlier than scheduled.

'After strong interest in home loan deferrals when they became available, the number of requests for deferrals has substantially slowed, and we have seen requests from customers to exit their deferral arrangements,' said ANZ spokesman Stefan Herrick.

Westpac spokesman Will Hine said: 'To date, more than 1000 of our customers who chose to take a repayment deferral have decided to resume their payments.'

Cunningham said in most cases, if people needed to have a further period of lower repayments, banks would give it to them.

BNZ says forecasting how mortgage holiday numbers might rise or fall once the wage subsidy ended is difficult.

But, 'my gut feeling is a lot of people will come off deferrals earlier than they agreed with the bank, whether it be three months of six months'.

Banks would not reveal their forecasts for how high the number of home loan repayment holidays and repayment reductions would go when the Government wage subsidy comes to an end in seven weeks, and businesses are no longer getting taxpayer help to pay staff wages.

'We are continuing to monitor borrowing, but the situation is unprecedented and we recognise that circumstances could continue to evolve, so we’d be reluctant to speculate on future demand for credit at this stage,' Herrick said.

BNZ spokesman Michael Burgess said forecasting the impacts of Covid-19 was 'notoriously difficult.'

All banks had seen a significant slowing of repayment holiday requests after an initial burst of applications from distressed borrowers in March and early April.

ASB spokeswoman Holly Ryan said that after a large number of requests for holidays, demand had reduced materially.

'We are now only seeing a small volume of additional requests as many New Zealanders are able to return to work under alert level 2,' Ryan said.

All banks recognised there was potential for more demand for repayments holidays as the economic crisis continued.

Kiwibank spokeswoman Kara Tait said the state-owned bank anticipated a potential lift in customer enquiries as the impacts of Covid-19 continued to be felt.

'At Kiwibank we’ve had less applications for home loan repayment deferrals than we anticipated, with many of our customers taking a wait and see approach.'

When the wage subsidy came to an end, Cunningham expected the numbers of people seeking deferrals to rise, but to be fewer in number than people coming off home loan holidays.

'I think we are seeing the wave of really substantial numbers of people going onto the deferral pass,' Cunningham said.

The number of people downloading home loan deferral forms at Co-operative Bank had slowed to near zero, he said.