BANKS will extend the home loans holiday to avert a potential mortgage default risk at the end of the fiscal cliff in September when JobKeeper and the six-month loan repayment deferral period expires.
The Australian Banking Association said the banks will implement a new phase of support with customers who can restart paying their loans will be required to do so, but those experiencing ongoing financial difficulty will have an option to restructure their loan.
Options may include extending the length of the loan, converting to interest only payments for a period of time and/or consolidating their debt.
If these arrangements are not in place at the end of a six-month deferral, customers will be eligible for an extension of up to four months.
ABA CEO Anna Bligh said the four months extension will not be automatic, it will be provided on a case-by-case basis.
“This next phase of bank support will avoid a ‘cliff’ for customers in September and give them the breathing space they need to work with their bank and get back on their feet financially,” Bligh said.
Over 800,000 customers and 60% of residential mortgages have deferred their repayments through the COVID-19 pandemic worth over $266 billion.
The bank’s pre-emptive move is aimed at averting the fiscal cliff at the end September. A recent survey found almost half of Australians currently on deferral support said they will struggle to meet their home loan repayments when the holiday period expires. Mozo warns the potential default figure could be up to $75 billion.
The National Australia Bank yesterday revealed that 98,189 of NAB customers have had their home loans deferred, valued around $39.14 billion. Furthermore, 39,528 businesses have postponed their loan repayments to the tune of $20.67 billion.
Treasurer Josh Frydenberg said on Wednesday the government is finalising a new income support program post September when the $70 billion JobKeeper scheme and $550-a-fortnight JobSeeker coronavirus supplement ends.
“Yes, and there’s going to be another phase of income support. The details of which will be announced on July 23. We recognise that some sectors are going to recover more slowly than others.
“For example, the tourism sector as a result of the international borders being closed. We’ve announced a number of sectorwide specific packages for housing, for the arts, for tourism. But we also recognise that the recent events in Victoria are being to be an impediment to the speed and the trajectory of the economic recovery across the nation,” the treasurer said on ABC TV.
Prime Minister Scott Morrison reiterated in a press conference that there will be further support post September.
“There will be a further phase of how we continue to provide support… This is about tailoring a national program to provide support where the support is needed,” the PM said.
It comes as greater Melbourne will enter a six-week lockdown on Wednesday night as the state government grapples with the rise in COVID-19 cases.
Victorian Premier Daniel Andrews said the government is also finalising further support for businesses impacted by the six-week lockdown period, which will end on August 19.
AMP Capital chief economist Shane Oliver warns the Melbourne lockdown will slow Australia’s economic recovery because Victoria accounts for 20% of the national economy.
Meanwhile Treasurer Frydenberg said the option is “live” to bring forward the $20 billion worth of tax cuts which was scheduled to come into effect in 2022, and a 32.5% tax rate from 2024.
“There are three stages to those legislated income tax cuts and, you know, the benefit was very clear. We’re creating one big tax bracket between $45,000 and $200,000 where people pay a marginal rate of no more than 30 cents in the dollar.
“So we are looking at that issue and the timing of those tax cuts because we want to boost aggregate demand, boost consumption, put more money into people’s pockets and that is one way to do it.”
The government hopes the income tax cuts of up to $2565-a-year for middle income earners will boost spending in the economy.