The imminent end of mortgage holidays presents the possibility of severe financial pain for thousands of Australians
Out of nowhere, coronavirus hit in March 2020, severely damaging the economy. Businesses were forced to shut and masses of people found themselves unemployed. In response, Australian banks offered their customers mortgage holidays.
What is a mortgage holiday?
A mortgage holiday is not a trip up the coast like the name suggests, but rather a pause or deferral of mortgage repayments for a fixed period.
Mortgage holidays have proven popular: approximately 10% of all borrowers have accepted a deferral of mortgage payments. ABC News reports that now, almost exactly 12 months later, the mortgage holiday is set to end with the Australian Prudential Regulation Authority (APRA) announcing that all repayment deferrals must end on 31 March 2021.
Originally set to last for just six months, in July 2020 the offer was extended for a further four months. This allowed a maximum loan deferral period of ten months. Leading up to the 31 March deadline, Australian banks stopped offering mortgage holidays and began requesting repayments from customers.
Many customers recommenced repayments before the deadline. ABC News reports that the between June and December:
- Commonwealth Bank
- Westpac Bank
- National Australia Bank
- ANZ Bank
- Suncorp Bank
- Bendigo Bank
However, the news is not all positive. A mortgage holiday survey by Mozo – a financial comparison website – found that 24% of people on a mortgage holiday will not be able to make their repayments when the mortgage holiday is over.
Mortgage holiday advice for consumers
How to catch up on mortgage payments
The ABA has said that once the deferral period ends, you must repay the interest accrued over the deferral period. You can do this by either:
- Extending the length of the loan; or
- Increasing the value of repayments.
Some of the major banks announced that their customers will not see an increase in their monthly repayments. Instead, customers’ loan terms are adjusted. Financial counselling services are already reporting that some banks are demanding that customers make large payments in order to clear their arrears and catch up on what they owe.
What should I do if my bank increases repayments, or demands a large upfront payment?
As a first step, call your bank and discuss your options with them. If their response is unsatisfactory, you should consider seeking our legal advice. We can help enforce your rights and assist you to negotiate a fair outcome. We’re committed to supporting our clients through financial hardship.
Our advice for mortgagees
If any of your customers are experiencing mortgage distress and if they may not be able to meet their financial obligations, contact us immediately. We can help you implement strategies to achieve a fair and reasonable outcome for all parties. If necessary, we are also able to assist mortgagees with commencing enforcement procedures against defaulting borrowers.
This article was written by Litigation Law Graduate, Zoe Pinch.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.