On mortgage holiday? Bank on a call

Short deferral in customers’ best interests: Broker

Borrowers who opted to take up a six-month mortgage “holiday” may get a call from their bank or broker asking if they can re-start payments from as early as next month — and experts say that is a good thing.

Banks began offering the deferral scheme from March 27 after reaching an agreement with the Government.

The deal enabled banks to allow customers to reduce or suspend mortgage repayments for up to six months, without the Reserve Bank considering those loans to be nonperforming when assessing bank solvency.

The interest on the loans continues to accrue.

More than 113,000 borrowers have either reduced or deferred loan payments on consumer debt — the bulk of which will be mortgage debt — worth $38.2 billion as of Monday, latest figures from the New Zealand Bankers Association show.

Bruce Patten, a mortgage broker at Loan Market, said his company would start contacting all clients that went on to interest-only or payment deferrals in June to see if they either needed further assistance or wanted to go back to normal.

“I would assume the banks will start doing the same, especially as a lot of branches have not fully reopened yet, so they have resources to do this.”

Patten said it was in the best interests of borrowers to restart payments as soon as possible.

“It’s in the best interests of the clients to start up their payments again if their income is back to normal, because it will save them thousands of dollars in the long run.”

Tom Hartmann, money editor at the Commission for Financial Capability, the Government’s financial education arm, said banks would be doing their customers a favour by checking to see if they could restart payments sooner.

He said it had heard from some borrowers who had already worked out how much the deferral was costing them.

“What we are hearing is borrowers are starting to roll off [the deferral].”

Hartmann said while the deferrals were initially painted as a “holiday” with positive connotations that was far from the case. He said some were choosing interest-only payments instead as it kept the debt more sustainable.

“We are seeing interest from borrowers in rolling off the deferral or shortening the term.”

But he said for those in tough circumstances it was still appropriate to use the deferral option.

“For someone who might be out of work and not able to make mortgage payments the idea would be to get back on their feet and pick it up again.”

Patten said the number of inquiries for those wanting a loan deferral had significantly reduced in recent weeks but he expected it to pick up again.

“We expect the next time will be when the wage subsidy finishes and as the six months rolls around when someone has lost their job.”

Hartmann said those who had initially opted for the deferral were likely to have been affected by the pandemic straight away.

He said an increase in applications would likely be linked to a rise in redundancies.

“It’s not necessarily connected to the wage subsidy but as people’s situations change . . . some people might get a severance package and be able to keep up their mortgage payments until they roll into another role.”

But those with a low savings buffer and who saw an interruption in their income would be most at risk.

New Zealand Bankers’ Association chief executive Roger Beaumont said there was no cut-off date for mortgage deferral applications unlike the Business Finance Guarantee scheme which has an application deadline of September 30.