Borrowers face refinancing difficulties after COVID-19 repayment pause

The near 500,000 borrowers who took a “repayment holiday” at the height of the COVID-19 pandemic now face difficulties in refinancing to a cheaper home loan rate loan. Despite lenders claiming COVID-19 repayment holidays wouldn’t damage borrowers’ creditworthiness, borrowers have now been told they need to re-established a clean bill of repayments before refinancing consideration. The banks have reportedly claimed the pause signalled a potential issue with their borrowers, notwithstanding their resumption of payments. Borrowers took the pause with the understanding it would not affect their borrowing power. The majority of loans granted repayment deferrals were housing loans; nearly 500,000 were deferred, which was close to 10% of all home loans amounting to $195 billion in value. “Lenders’ policies going into this was for it not to be a blemish on someone’s financial record going forward but unfortunately we’re seeing some banks not abiding by how it was originally designed to work,” Connective executive director Mark Haron told the Mortgage Professional Australia industry website. Haron added lenders who refuse to refinance a customer purely because they have been on a repayment pause "should be called out." “It’s a breach of what the intention of that program was and I’m sure the government would be interested in that,” he added. MPA did not name any lending institution. As at 31 January, according to data submitted to APRA by authorised deposit-taking institutions (ADIs) with over $20 million in loans subject to repayment deferral, a total of $37 billion worth of loans are still on temporary repayment deferrals, which is around 1.4 per cent of total loans outstanding, down from $50 billion (1.9 per cent of total loans outstanding) in December 2020. Housing loans make up the majority of total loans granted repayment deferral. APRA granted temporary capital concessions to ADIs offering loan deferrals to small businesses and home loan customers struggling due to COVID-19. In allowing ADIs to temporarily treat loans with deferred repayments due to COVID-19 as if they continued to be performing loans, lenders avoided the imposition of higher capital requirements.