The Commonwealth Bank says many borrowers who froze their mortgage repayments in response to COVID-19 are switching to lower fixed rates or interest-only loans to avoid the prospect of selling their homes.
At the end of next month, emergency loan deferrals offered by banks in response to the pandemic will end, requiring customers to either resume their repayments or look at other options, including selling their property.
While most borrowers who froze their payments last year have so far resumed repayments, CBA still has 24,000 customers who are on some type of deferral arrangement.
CBA’s group executive in charge of retail banking, Angus Sullivan, said that since the deferral scheme opened last year, most customers who paused their loan had returned to their previous repayment, while others had switched to lower-cost finance options.
“We’re seeing a number of customers take up new loan constructs, such as taking the low fixed rate. And then we’re seeing some customers switch to interest only, which is helping them even further, and then a very small number of customers we’re basically needing to restructure,” he said.
For people struggling to make any repayment, such as those facing long-term unemployment, he said the more buoyant property market made it a better time to sell a home than at the peak of the crisis last year. But he stressed a “very small” minority would need to sell their homes.
“The improved conditions in the property market mean that if they do have to go through to selling the property, which I think will be a relatively small number of customers in the grand scheme of things, they’re doing that in a more buoyant market now than would have been the case nine months ago,” he said.
Mr Sullivan said the bank had a moratorium on evictions of owner-occupiers until September, but he expected this would only be a prospect for a very small number of borrowers.
The comments came after CBA’s $3.9 billion half-year profit this week showed it was gaining share in mortgages, where the lender is upbeat about the outlook.
Mr Sullivan said the $3 billion growth in CBA’s mortgage balances in December was “very substantial,” and he expected a strong year ahead, with the market to remain “extremely competitive.”
“I think the conditions are in place for 2021 to be a strong year for the property market and we are gearing up to make sure that we can support that really strongly,” he said.
Meanwhile, analysts doubled down on predictions CBA would return its $10 billion in excess capital to shareholders through share buy-backs or higher dividends.
Citi’s Brendan Sproules said it seemed inevitable that capital returns would be a key driver of CBA’s earnings per share once the risk of the pandemic had passed, most likely through a vaccination program.
Meanwhile, UBS analyst Jonathan Mott said it was likely CBA would announce $10 billion in buybacks at its full-year results in August this year, on top of a higher final dividend, which he estimated would be $2 a share.
Source: Thanks smh.com