Reserve Bank says agreement reached on further mortgage repayment deferrals, with details expected next week

Wednesday, 12 August 2020

Banks have agreed with the Reserve Bank to extend mortgage repayment deferrals that let people impacted by Covid-19 delay repaying their home loans, Reserve Bank governor Adrian Orr said.

The Reserve Bank agreed in March to make it easier for banks to offer the deferrals to customers for a period of up to six months by not treating the suspended loans as impaired loans that require banks to hold more capital.

Deferring mortgage repayments is not an attractive option for home-owners unless they are in hardship, as interest will continue to accrue on loans while repayments are suspended – meaning they can expect to pay more in interest over the lifetime of their loan.

Orr said the Reserve Bank had agreed with banks to extend the March arrangement, but said the details had not yet been finalised.

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The extension could help avoid a cliff edge for home owners that have lost their jobs as a result of the coronavirus.

Orr cautioned the extension would not be permanent but said it would give banks and customers in hardship “more time to work out what needs to be done”.

More information should be available next week and Orr asked borrowers not to approach their bank about extending deferrals before that, as they would be unable to help until those details were finalised.

Reserve Bank deputy governor Geoff Bascand said late last month that banks had so far deferred principal and interest payments on just over $21 billion of residential mortgage lending, and just over another $18b of mortgages had moved to “interest only” terms.

That represented 14 per cent of the banking sector’s mortgage book, he said.