The New Zealand Bankers' Association says there are no plans to resurrect the mortgage deferral scheme, but isn't ruling out doing so

By Gareth Vaughan

Despite the country battling a community outbreak of the Covid-19 Delta variant, banks don't plan to resurrect the mortgage deferral scheme used after Covid-19 first arrived in New Zealand last year.

Roger Beaumont, chief executive of bank lobby group the New Zealand Bankers’ Association (NZBA), says there's no move to bring back a loan repayment deferral scheme at this stage However, he says this could change depending on how the current outbreak unfolds.

"We will continue to watch this closely," Beaumont says.

“When we introduced the loan deferral scheme in the first lockdown there was much more uncertainty about how Covid would impact the economy. To date we’ve come through better than expected," Beaumont says.

“Anyone experiencing financial difficulty because of the current lockdown should contact their bank to discuss how they can help. Banks can offer a range of options for customers facing hardship, depending on their circumstances. The sooner you contact your bank, the better placed they are to help. It’s worth checking your bank’s website to find out the best way to contact them at this time.”

Finance Minister Grant Robertson also said on Monday the Government wasn't currently proposing a return to the mortgage deferral scheme, nor a replay of the Business Finance Guarantee Scheme, which ended in June.

The mortgage deferral scheme wrapped up on March 31. At that stage NZBA said borrowers whose repayments were deferred due to the Covid-19 pandemic and were still struggling, could get an additional temporary payment deferral, have the term of the loan extended to reduce repayments, or be moved to interest-only repayments for a period.

The loan repayment deferral scheme was introduced in March 2020 to help borrowers hit financially by COVID-19. It was put in place with the agreement of the Reserve Bank, Government and banks initially for six months, and then extended for a further six months last August.

The repayment deferral scheme increased future risks for borrowers, as the missed payments were delayed rather than forgiven and must be repaid. This may lead to a situation where the missed interest payments are added to the loan balance, resulting in a higher debt repayment burden once the payment deferral period ends. The Reserve Bank agreed to not treat deferred loans as non-performing loans in arrears for the bank lenders. If a loan is recorded as being in arrears, normally this significantly increases the amount of capital the bank lender needs to hold against that loan compared to when it's treated as a performing loan.

According to the NZBA, more than 66,000 household and business loans, with a total value of around $30 billion, were fully deferred. At the end of February NZBA says there were around 3000 household and business loans still deferred, with a total value of about $1.1 billion, against total household and business lending for banks of about $480 billion.

This story was originally published on Interest.co.nz and has been republished here with permission.