Covid home loan crisis nearly over as just 8300 borrowers remain on repayment 'holidays'

Saturday, 23 January 2021

Banks are on track to transition all but a tiny proportion of home loan customers back to full repayments by the end of March, data from credit reporting bureau Centrix shows.

Centrix gathers data from banks on the state of home loans, and it says just 8300​ home loans remain on deferred payment plans, said chief executive Keith McLaughlin​.

That equated to just 0.6 per cent of all home loans, a far cry from August when around 7​ per cent of home loan borrowers had done repayment reduction or deferral deals with their banks, he said.

McLaughlin said horror unemployment forecasts by bank economists at the peak of the Covid economic disruption had not played out because the economy bounced back more quickly, and more strongly than expected.

**READ MORE:

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* 'Bow wave' of mortgage pain ahead, credit agency says

**

In May, Westpac had been forecasting unemployment to peak at 9.5​ per cent. In June it revised its forecast down to 8​ per cent, and then to 7​ per cent in September.

In September the official unemployment rate hit 5.3​ per cent.

As the fight against Covid stalled the economy, banks were encouraged by the Government and the Reserve Bank to allow struggling households to defer repayments on their home loans, and on other forms of debt like personal and car loans.

The Reserve Bank allowed banks to continue accounting for loans that were on deferred payment plans as though they were loans being repaid as normal, but that leeway is being withdrawn at the end of March.

McLaughlin said Centrix did not gather information indicating the reasons borrowers had been able to transition back to making full repayments.

But banks say some borrowers whose incomes dropped, or whose jobs were threatened, had now come through their personal financial storms. Some who lost jobs, had been re-employed elsewhere, and a minority of borrowers had sold their homes.

Big drops in home loan interest rates had helped with repayment affordability, McLaughlin said.

Repayment deferral deals varied from household to household. Some temporarily made interest-only payments to their banks, while others temporarily suspended all repayments.

Those who suspended all repayments saw the amount they owed increase, as unpaid interest was added to their loans.

Mortgage adviser Karen Tatterson from Loan Market said one of the options offered to people whose home loans had grown, was to extend the duration of their loans.

While the national picture shows only a relatively small number of home loan borrowers still in financial crisis, there were still hotspots around the country of higher home loans in trouble.

The worst hit city remained Queenstown where spending by domestic tourists has not fully replaced revenue that used to come from international tourists.

But while just over two​ in every 100 home loans in Queenstown remained on deferred repayments, that compared to 12​ in every 100 in August, Centrix data showed.

Over that same period the proportion of Auckland home loans on deferred repayment fell from seven​ in 100 loans, to just under one in 100​.

Lyn McMorran, executive director of the Financial Services Federation (FSF)​ of non-bank lenders, said most non-bank personal and car loans that had been moved onto deferred repayment plans during the first half of last year, were now back onto full repayment schedules.

FSF members, including Instant Finance, AA Money and Toyota Finance, specialise in personal loans, and loans to buy smaller assets like cars.

“Our members are saying the same thing as Centrix,” McMorran said.

“Their loans have been back in order for months now, and they are still reporting record low levels of arrears.”