Loan deferral lifts income in pandemic

ONE in 12 home loans were deferred at the height of the pandemic and many households experienced income boosts during the crisis, a new report has revealed.

In June, about 8 per cent of mortgages were put on hold before slightly falling to 7 per cent in August, the Reserve Bank of Australia’s biannual Financial Stability Review outlined yesterday.

“The shares of deferred loans have been similar across the states and territories, although they are slightly higher in Victoria, reflecting the extended lockdown measures,’’ the report says.

The comprehensive review examines in detail the nation’s finances and despite the pandemic it showed many households are coping financially.

During the pandemic about 900,000 loans — both mortgages and business loans — have been deferred.

The report says deferrals helped mortgage and small business customers “avoid defaults” and says banks needed to “deal carefully” with customers who have taken a break on their repayments.

“Banks need to deal carefully with the loans of borrowers who will not be able to resume repayments, in a way that balances avoiding further losses to the bank, the interests of the borrower and potential spill over effects from and sales of collateral,” the report says.

It also shows of customers who did defer, about 75 per cent were less than three months ahead of repayments.

Initially most customers who sought deferrals were given six months of breathing space, but for those who still needed help they could get their deferral period extended by another four months. The report also confirms the share of households behind on their loan repayments has climbed and is expected to increase further.

But it also shows many Australians have received income boosts during COVID-19 and have more money than prepandemic.

“Overall household income in Australia increased in the first half of the year, with large fiscal stimulus payments more than offsetting the decline in employment income.

“Households’ cash flow also benefited from loan repayment deferrals and the early release of funds from superannuation.

“Households have increased their savings buffers in response to increased economic uncertainty, including through payments into mortgage offset and redraw accounts.”

In August Australia’s unemployment fell from 7.5 per cent to 6.8 per cent but the figures do not include people who are receiving Jobkeeper payments. More than 3.5 million Australians are on Jobkeeper payments and about 1.8 million Australians are on Jobseeker payments.

The report shows many Australians have “increased their financial resilience through higher mortgage prepayments, paying down personal credit balances, and increasing their savings”.

“Overall, businesses entered 2020 in good financial shape, but have since experienced sharp falls in revenue,” the report says.