Reserve Bank raises spectre of wave of 'managed sales' of homes in March
Thursday, 26 November 2020
The Reserve Bank has raised the spectre of a wave of “managed sales” of homes early next year, belonging to borrowers who can no longer afford their repayments.
In total, 1.5 per cent of home loan lending at the start of November was to borrowers not able to make any repayments on their loans, the Reserve Bank said in its November Financial Stability Report.
Under the bank home loan deferral scheme, borrowers accounting for around 18 per cent of home loans were temporarily allowed to make lower repayments, or temporarily stop repayments, if they had lost income during the Covid-19 pandemic.
Most have now resumed full repayments again, helped by lower home loan rates, but the home loan deferral scheme was due to end in March, the Reserve Bank said.
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“At that stage, the proportion of loans that will require extended assistance or managed sales of properties, and the appropriate levels of loss provisioning by banks, will become clearer,” the Reserve Bank said.
The Reserve Bank said as unemployment grew, a number of customers would have no realistic prospect of resuming repayments.
It did not appear that the Reserve Bank intended to extend the deferral scheme, under which banks could account for non-paying home loans as though they were ordinary, untroubled loans.
But the banks could choose to extend help to troubled customers anyway, the Reserve Bank said.
“Beyond March 2021, banks will still have a range of options to support customers who are facing hardship. This could include extending loan terms or offering further periods of interest only or full payment deferrals,” it said in a written statement.
“However, the implication of the expiry of our regulatory guidance is that in some cases these loans would need to be recorded as non-performing. This will have implications for the amount of capital banks require for these loans, and could also affect customer credit scores.”
Christine Liggins from Debtfix, which helps families get on top of their debts, said banks should choose to extend help without the Reserve Bank’s approval.
“The banks have got the power to extend it themselves. They don’t need the Government to tell them to. The banks can decide to do that, and why shouldn’t they?
“It’s a ruddy pandemic. You don’t have to be told what’s the right thing to do by the government,” Liggins said.
Roger Beaumont, chief executive of the New Zealand Bankers’ Association, said banks would continue to work with customers struggling to make repayments on their home loans.
“Since March banks have been working proactively with customers who were financially impacted by Covid-19,” he said.
“Banks will continue to work with affected customers, including the relatively few who still have fully deferred loans.”
Beaumont said: “Options for these customers may include moving to interest-only loan repayments or restructuring the loan, for example by extending the term of the loan.”
Banks had dedicated hardship teams, and routinely worked with customers who faced financial difficulty due to a change in their situation., he said.
“The mortgage deferral scheme has been important in supporting good customer outcomes and preventing a large-scale disorderly exit of borrowers from the housing market,” the Reserve Bank said.
In total, about 9 per cent of mortgage lending received a payment deferral, with a further 9 per cent temporarily restructuring to interest-only.
At the beginning of November, about 4 per cent of home loan borrowers were still making interest-only payments, Reserve Bank data showed.