Reserve Bank extending mortgage deferral scheme
The Reserve Bank - Te Pūtea Matua - is announcing an extension of the regulatory guidance for the mortgage deferrals programme to help customers in need.
Since the original guidance was issued in March, many lenders have been supporting customers affected financially by COVID-19. The regulatory guidance means banks can continue to offer temporary mortgage deferrals to their customers, without those loans being viewed as being in default, Deputy Governor and General Manager of Financial Stability Geoff Bascand says.
The extension takes effect from when the existing guidance expires on 27 September and will apply until 31 March 2021, at which point the usual treatment will resume. Banks will still be able to offer deferrals to borrowers after this date, but they will not have the same concessionary regulatory treatment.
“The Reserve Bank expects that lenders will consider borrowers’ best interests when assessing whether to offer a new deferral, or to extend an existing one,” Mr Bascand says.
“For many borrowers, resuming, or continuing payments in some form will be the most suitable approach, rather than taking up a deferral of their loan payments. A deferral should not be the default setting and it will be up to individual lenders to decide whether to offer one to their customers.”
Where the lender considers there is little reasonable prospect that the borrower will be able to resume payments once the deferral ends, other options should be considered, including hardship arrangements with the bank.
“Borrowers should be aware that interest will continue to accrue on their loan during a deferral, potentially prolonging the repayment period. We recommend that customers considering extending, or applying for a deferral, contact their banks to discuss the best solution for them.”
The updated guidance applies both to borrowers seeking an extension to an existing loan deferral, and to new applicants for deferrals.
“We appreciate the extensive engagement that we have had with the New Zealand Bankers’ Association (NZBA) and individual lenders in considering options for the future of the deferrals scheme,” Mr Bascand says.
- On 27 March 2020, the Reserve Bank issued regulatory guidance to facilitate banks offering loan deferrals to their customers. This guidance enabled banks to temporarily treat deferred loans as performing (non-defaulted) for a period of up to six months.
- Loan deferrals were initially made available to residential property mortgages, including business lending secured against residential property. In April the scheme was extended to cover other lending, including small and medium enterprises (SMEs) and agriculture.
- A key feature of the guidance is that it provides lenders concessionary treatment for deferred loans, so that the loans do not have to be regarded as in default for the purposes of regulatory capital. More information is available in the associated guidance material that has been provided to banks.
- There are no regulatory barriers to non-bank lenders, such as credit unions and building societies, also offering deferrals to their customers under the Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010.
- Loan deferrals guidance extension letter to banks (PDF 161KB)
- NZBA media release: Next steps for loan repayment deferrals