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Summary
- Mortgage deferment cases have been growing and have led to arrears to the tune of NZ$2.6 billion.
- RBNZ has extended the mortgage deferral scheme until 31 March 2021.
- Banks can provide help to economically distressed customers even after the scheme
Mortgage arrears have been on a rise in NZ as thousands of Kiwis are running behind on mortgage payments. This trend is a result of the fact that the Reserve Bank of New Zealand allowed retail banks to defer mortgage payments for customers, who were finding it difficult to repay.
Reserve Bank’s Loan Deferral Scheme
The scheme was first announced in March to help financially affected consumers amid pandemic by allowing banks to continue giving their clients immediate mortgage deferrals without treating such loans as being in default.
The mechanism also enabled banks to limit or cancel mortgage repayments for about 6 months period without RBNZ treating such loans as NPAs (non-performing assets).
RBNZ announced a further extension of the mortgage deferral guidelines in August to 31 March 2021 after due consideration. Even though the central bank mulled over several options, it found that this scheme of repayment holidays had been the most useful.
After this date, banks will still be able to provide loan deferrals, but not with the same concessionary statutory treatment.
As per RBNZ, almost 80 % of the deferred loans had been paid off by those who took the deferral option but 20 % still needs to be paid. The Reserve bank data has shown that almost NZ$2.6 billion worth of loans are still under deferral.
However, the concern is that the 20% customers who have deferred their mortgages are the ones who may not be able to pay but are still on the scheme.
Banks to continue working with struggling clients after March
The Reserve bank has stated that increasing share of the scheme benefit is going to borrowers with low deposits, subsequently increasing the risk to the financial stability of the system.
Many people have now resumed to full repayments due to lower mortgage rates. The amount of assistance needed and levels of loss provisions by banks will become evident in March next year as the scheme ends.
After March 2021, banks could support distressed customers by extending loan terms or providing clients with further interest periods or full payment deferrals. However, the loans might have to be recorded as non-performing in few cases.
