Repayment holidays or loan payment deferrals as a result of COVID-19 for a majority of borrowers are due to end in September. If you or your business initially deferred a loan at the beginning of the pandemic, now is the time to start working out whether you can afford your repayments. To ensure that the interests of consumers are protected, ASIC has outlined some expectations of financial institutions in dealing with an orderly return to repayments including contacting consumers in a timely manner.
If you're one of the many Australians that has taken up loan payment deferrals for their homes or businesses, beware as the repayment holiday for most financial institutions is due to end in September. According to APRA data, 11% of housing loans were deferred and 17% of small business loans were deferred as at 30 June 2020.
While the data shows encouraging signs of an increasing number of loans exiting from repayment deferral towards end of 30 June, there are still a significant number of loans still on deferral. These loans are more likely to be owner-occupier borrowers, making both principal and interest repayments and have a higher loan to value ratio than other housing loans.
To ensure that these consumers are protected, ASIC has outlined some expectations of lenders during this period. First and foremost, ASIC expects lenders to have processes in place that will allow for orderly transition from deferral to starting repayments, and importantly, deliver consumers appropriate and fair outcomes.
So, if you're one of those that have deferred your loan, you should expect your financial institution to contact you about the expiry of the deferral. According to ASIC, lenders should make reasonable efforts to contact consumers prior to their repayment deferral expiring and the contact should be timely and allow for consumers to have reasonable time to consider their options. This could include information on how assistance arrangements may affect repayments and the cost of the loan over the longer-term.
"While ASIC expects lenders to contact borrowers using a range of communications channels if a consumer does not respond, remember that the efforts only have to be 'reasonable'. Therefore, borrowers cannot be purposely avoiding contact or expect their lenders to make extraordinary efforts to contact them."
If you already know that you cannot return to full repayments on your loan due to the current economic situation, you should make it clear to your lender when you first get contacted. Your lender should then contact you directly through a phone call to discuss your financial circumstances and whether it would be appropriate to offer further assistance.
ASIC notes that lenders' processes in relation to loan deferrals should be flexible and empower staff to offer tailored assistance that genuinely addresses the needs of the borrower. It expects lenders to make all reasonable efforts to work with borrowers to keep them in their home if that's in their best interests. Although ASIC says it recognises that there will likely be some circumstances where offering a borrower further temporary assistance may make their situation worse. Those instances, it says will need to be carefully identified and involve a high level of engagement.
If you're unhappy with your lender's response or actions, you can make a complaint to the Australian Financial Complaints Authority (AFCA). Lenders are required to notify borrowers of their rights to complain in situations where the borrower informs the lender that they will be unable to meet their repayment obligations and the lender decides not to provide further assistance.
Can You Afford Your Repayments?
If you or your business need some help in working out whether you can afford to recommence your repayments, we can help you work that out. We can also help with documentation if you need to renegotiate your repayments with your lender.