Banks hit harder by disproportionate 90% LVR loan deferrals

author-avatar By on October 01, 2020
Banks hit harder by disproportionate 90% LVR loan deferrals

Photo by Jonas Wurster on Unsplash

Data released from the prudential regulator reveals 90%+ LVR home loans made up 9% of all mortgage deferrals, despite making up just 5% of the overall market.

According to the Australian Prudential Regulation Authority (APRA), the value of loans deferred is decreasing - down to $229 billion in August from $274 billion in June - with $14 billion of loans approved for deferral in August.

Approximately $24 billion worth of deferred loans were expired or exited in August, however, the level of 90% LVR loans in the pool continues to be disproportionate with the wider market.

Commonwealth Bank (CBA) had the highest share of 90%+ LVR loans deferred out of the 20 largest banks at nearly 13.5%, up from 12.9% in July.

Smaller banks with a high proportion of 90%+ LVR loans deferred include Teachers Mutual Bank at 28%, Auswide Bank at 18%, and Queensland Country Bank at 16%.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 18, 2021. View disclaimer.

Loans with LVRs greater than 80% (i.e. a 20% deposit) typically require lenders mortgage insurance - or LMI - which a few lenders have offered discounts on in recent months.

In a note to the Australian Securities Exchange (ASX), CBA chief Matt Comyn said the bank had provided deferrals to approximately 250,000 home, personal and business loans.

"As we approach the end of the initial deferral periods, we have been contacting all customers with deferred loans to talk with them about their options, including returning to full or part payment, or converting their loans to interest only," he said.

Expired or exited loan deferrals for CBA amounted to $5.7 billion in August, compared to approximately $58.8 billion of total deferrals still on the books.

More than a third of all CBA's deferral values came from New South Wales, followed by 27% in Victoria, 17% in Queensland, 15% in Western Australia, and 7% in all other states.

Recent research also revealed nine of the top 10 regions for home loan deferrals are in Queensland.

Worry over 'liar loans' after push for easing lending criteria

The prudential regulator's data comes days after the Government announced it will roll back some responsible lending criteria, placing the onus on borrowers to be truthful in their applications.

However, a recent survey of 904 Australians by investment bank UBS reveals those who fudge their applications have diminished credit quality.

As many as 37% stated their mortgage application was not "completely factual and accurate".

UBS analyst Jonathan Mott said the credit quality of borrowers was weaker than the banks and prudential regulators portray.

"We found that factually inaccurate mortgagors have seen household income fall by an average of 13%, 36% have deferred repayments, 66% have a household member on JobKeeper/JobSeeker and 71% withdrew superannuation," he said.

UBS also found 40% overstated their income on their application, by an average of 21%. 

Fifteen per cent also understated other debts, according to Mr Mott, who recommended deferrers who switch to interest-only loans should be considered 'delinquent' on their loans.

“Unfortunately, we found the financial position of those asking to move to interest-only is only marginally better," he said.

According to the survey, ANZ had the highest proportion of 'liar loans' at 41%, followed by CBA at 39%.

Delinquencies in loans could lead to a credit freeze, similar to what was seen during the global financial crisis.

However, co-founder of buyer's agent BuyersBuyers Peter Wargent said there continues to be improvements in the deferral space.

"Mortgage brokers have signalled that many borrowers elected to take a repayment holiday in order to maintain a financial buffer, as a form of insurance policy, rather than through genuine duress," he said.

"And targeted stimulus measures providing income support have been very effective, as has been borne out by the lowest bankruptcy and insolvency figures in a quarter of a century."

The low level of insolvencies is buoyed by Government support and stimulus targeted at small businesses, such as commercial lease eviction moratoriums, changes in the bankruptcy notification laws, and changes in the 'safe harbour defence'. 

However, many experts have warned this has led to a rise in 'zombie companies'.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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