Brokers back home loan scheme extension
WELLINGTON: Mortgage brokers say the home loan holiday scheme should be extended despite demand for it falling.
Reserve Bank of New Zealand figures show there were just 391 requests for mortgage deferrals through the banks in the week to July 24.
Weekly application numbers have fallen steadily since the peak of 28,455 in the week ending April 10, during lockdown, and have been about 500 a week or fewer since midJune.
Finance Minister Grant Robertson announced the scheme on March 24 after an agreement was reached between banks and the banking regulator.
The Governmentapproved scheme enables 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.
Banks have always had loan deferral and interestonly options but applicants typically needed to go through a rigorous hardship application process.
The scheme arrangement essentially made it so anyone affected by Covid19 could apply and be accepted, allowing the banks to handle high volumes of applications.
Nearly 60,000 borrowers (59,885) had agreed to a deferral of payments on $20.2 billion of home loans, personal lending, credit card or overdraft debt as of June 30, New Zealand Bankers’ Association figures show.
A further 79,166 customers had agreed to reduce loan payments to either interestonly or to a reduction in principal and/or interest repayments on $24 billion of such debt.
Banks and brokers both indicate some borrowers have already come off the deferral.
Squirrel Mortgages managing director John Bolton said the scheme should be extended.
‘‘I think it’s a good idea for those suffering a loss of income due to Covid.’’
Loan Market mortgage broker Bruce Patten believed an extension was inevitable.
‘‘A lot of businesses haven’t decided on who and how many people they will lay off after the wage subsidy finishes at the end of September. So a lot of people are on 80% of their wage and may end up staying on that or taking a reduced number of days/hours or lose their job altogether.’’
In Australia, a similar scheme has been extended for four months, stretching it until the end of the year.
Mr Patten predicted New Zealand could follow suit with another four months taking it out until the end of the year.
Mr Bolton said if New Zealand was to extend its scheme it would be better to do so for up to six months.
‘‘Four months lands at Christmas so I’d prefer six months to get them through to March.’’
The criteria for who qualified was likely to be tightened by the banks, Mr Patten said.
‘‘They will want to understand the client’s circumstances and what’s happening, so people can expect to have to provide a lot more info that [their] income has been reduced unless, of course, they were made redundant and don’t currently have a job but are still looking.’’
Mike Pero Mortgages chief executive Mark Collins said the scheme should be extended but only to those who really needed it; he was ‘‘a bit concerned about a blanket approach’’.
Continuing to allow people to defer payments had potential downside risks, particularly for firsthome buyers who had bought a house in the past year or so, and could face negative equity if house prices fell.
‘‘For firsthome buyers at 90% [loan to value ratio], who’ve bought in the last year it doesn’t take much if they have had some job challenges . . . extending that holiday gets close to the red line.’’
Firsthome buyers’ levels of financial knowledge were often low and many believed that if the bank allowed them to do something it was a good idea, Mr Collins said.
Borrowers needed to understand the full consequences of extending the deferral, which could include having to make higher payments or extend the amount of time it took to pay off a mortgage, he said.
However, Mr Bolton said the scheme should not be too restrictive.
‘‘People are generally sensible and know they are adding cost to their debt. We don’t need to be a nanny state.
‘‘If homeowners have enough equity, then why get too worried about this? Effectively, a mortgage deferral is like using builtup savings but it’s in the form of equity in their home.
‘‘If they don’t own they have to rent so, either way, there is a cost that will eat up savings.’’ — The New Zealand Herald