Taking a mortgage holiday explained
The Government has announced a mortgage holiday for those affected by the coronavirus.
At a press conference yesterday, Finance Minister Grant Robertson said the major retail banks had agreed to a six-month mortgage holiday for people who had their income affected due to the economic affects of Covid19.
The exact criteria was yet to be finalised but it will cover both principal and interest payments.
Robertson said he urged people not to ‘‘bombard’’ banks with queries about having a mortgage holiday.
Paying the mortgage quickly becomes a problem when income drops. And the economic disruption caused by the coronavirus has put about 67,000 jobs on the line.
A mortgage holiday is when you stop contributing or making any repayments on your mortgage, but interest continues to mount. You will still have to pay that money to the bank at the end of the six months. Banks offer this in times of hardship.
Business NZ chief executive Kirk Hope said the mortgage holiday would ease the pressure off businesses.
How will this mortgage holiday work?
While the details are yet to be announced, Robertson said the Reserve Bank had agreed to help banks put this in place with appropriate capital rules.
Westpac NZ chief executive David McLean said last week banks were well-capitalised and so had flexibility to do mortgage holidays, and interestonly arrangements.
In December, the New Zealand arm of the bank reported a 3 per cent lift in net profit to $964m from $936m the previous year. While cash earnings lifted 3 per cent to $1.042 billion, boosted by the sale of Paymark.
Last year, New Zealand’s biggest bank ANZ made $1.825 billion, while ASB made a profit of $1.2b, and BNZ $1b.
Am I eligible?
The package will include a six-month principal and interest payment holiday for mortgage-holders and small and medium enterprise customers whose incomes have been affected by the economic disruption from Covid19.
Robertson said this measure was intended to protect people from losing their homes as a result of the economic disruption caused by this virus.
The Reserve Bank’s Financial Stability Report from May 2019 showed household debt was growing at 6 per cent a year, compared to 9 per cent in 2016. And debt was still increasing faster than income.
About two-thirds of households have no mortgage debt, but nearly 40 per cent of new mortgages are to people borrowing more than five times their annual incomes.
What have other countries done?
On Friday, the Australian banks announced a six-month mortgage holiday for small businesses and for home loans but interest would continue to mount during the payment holiday, adding to the amount eventually due when the crisis lifts.
Last week the UK put in place a three-month mortgage payment holiday and extended it to landlords whose tenants are experiencing financial difficulties due to coronavirus.
Italy has also temporarily suspended mortgage payments, but so far the Trump administration has made no mention of that in the US.
Business NZ chief executive Kirk Hope said the mortgage holiday would ease the pressure off businesses.