COVID loan deferrals down as customers start to repay their home loans

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on September 11, 2020
COVID loan deferrals down as customers start to repay their home loans

Photo by Todd Diemer on Unsplash

The number of temporary loan deferrals due to COVID-19 among Australian banks fell slightly in July 2020, as more customers started to make repayments on their loans.

According to data released by the Australian Prudential Regulation Authority's monthly data, $240 billion of loans were subject to deferral at 31 July, representing 9% of total loans.

In terms of housing loans, $167 billion were deferred, which is also 9% of the $1.8 trillion in total home loans. 

This is an improvement on June's figures, which had 11% of mortgages deferred to the value of $195 billion. 

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

Variable
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UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
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Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
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100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
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NSW/VIC/SA METRO & INNER REGIONAL AREAS
NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
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REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
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NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

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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 be 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. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 28, 2022. View disclaimer.

Also shown in the data is the number of exited or expired loans increasing from $33 billion in June to $40 billion in July.

The number of Australian borrowers resuming mortgage repayments in July fits with the Australian Banking Association's call for borrowers to start resuming repayments if they had the capacity to do so, also in July. 

“Those who are able to repay their loans will resume doing so, which is in the best interests of those customers and allows support to be directed to those who need it," ABA Chief Executive Anna Bligh said in July. 

"Encouragingly, many customers have already chosen to resume making repayments."

The numbers also support statements made by the likes of ANZ and Commbank CEO's Shayne Elliott and Matt Comyn to the Standing Committee on Economics last week, saying many customers had begun to repay deferred loans. 

"As the deferrals finish, we believe most will resume paying down their loan. And, encouragingly, we’ve already seen a number of customers make some kind of repayment," Mr Elliott said. 

"However, the reality is that some will need further help."

"By the end of September we will have made calls to around 250,000 customers, over a two month period," Mr Comyn said. 

"Many of those we contact will be able to recommence their repayments. Some are facing more difficult circumstances."

The six-month mortgage holiday for customers is almost over, with more than 80,000 loans to be assessed by the end of September and 180,000 by the end of October. 

However banks are offering a further four-month extension on a case-by-case basis for those who need it. 

Westpac and Suncorp see the biggest drops

Westpac and Suncorp Bank saw the biggest monthly drop in loan deferral numbers. 

Westpac's deferred loans fell by 25% to $41 billion, while Suncorp's exposure to deferrals fell by 22% to $3.5 billion. 

ANZ meanwhile had the biggest exposure to housing loan deferrals among the big banks at 12% ($30 billion), and actually increased its exposure by 4%. 

Westpac had the lowest exposure to housing loan deferrals at 6%, worth around $30 billion (ANZ has a smaller loan book than Westpac). 

NAB had a housing deferral exposure of 8% ($30.5 billion). 

Arab Bank Australia had the highest exposure to deferred housing loans at 17% of its overall housing loan book ($65 million).  

Public sector credit unions have lowest exposure to deferred loans

Many of the loans that have been deferred over the COVID-period occurred due to households losing income and jobs, with Commbank full-year data showing that 14% of deferred home loans had at least one borrower that was receiving JobSeeker payments.

Smaller 'public sector' credit unions and mutual banks had some of the lowest levels of loan deferrals as a proportion of total housing loans. 

For example:

  • Police Bank had the lowest exposure at just 1.8% ($29 million);
  • Australian Military Bank only had 2.3% of housing loans deferred ($27 million);
  • Police Financial Services Limited had just 3% of loans deferred ($47 million);
  • Police Credit Union Limited had 4% ($29 million);

Representative mutual banks for other 'recession-proof' job sectors like teaching also experienced relatively few deferrals. 

Victoria Teachers Limited had just 3% of housing loans deferred ($55 million), while Teachers Mutual Bank Limited also had an exposure of just 3% ($195 million). 

However, Teachers Mutual Bank has highest share of 'risky' loans

Teachers Mutual Bank had the highest proportion of high LVR (loan-to-value ratio of 90% or more) housing loans under deferral, at 28% of its total deferrals. 

Victoria Teachers Limited came in second for high LVR loans deferred at 21%, while Auswide bank was third at 18%. 

The big four banks' proportion of high-LVR loans in their housing deferral books were:

  • Commbank: 13% 
  • Westpac: 10%
  • ANZ: 8% 
  • NAB: 4% 

Arab Bank and G&C Mutual Bank had 0% of its deferred loans on a LVR of 90 or higher.

Investment loans with higher deferral rates 

As much as 40% of NAB's housing deferrals were investment loans, worth around $12 billion. 

Westpac's investment loans were deferred at a rate of 36%, while Commbank and ANZ had 33% and 32% respectively. 

Around 16% of all deferred loans among the authorised deposit-taking institutions (ADIs) monitored by APRA were interest-only, the cheapest form of home loan repayment, which might represent a problem once loan deferrals end. 

73% of Australian Mutual Bank's $26 million in deferred loans were interest-only. 

APRAinfo.jpg

Source: APRA. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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