Banks to Increase Interest Rates on Those Asking for Mortgage Relief

• 

  redfox1200 on 10/09/2020 - 17:45

  +23

  if the bank is taking on higher risk, then they should be able to charge a higher interest, atleast until you have caught up on payments

  • 

    Cartman2530 on 10/09/2020 - 18:11

    +10

    Morals aside, that's exactly the reason they will charge a higher interest rate, those people that are struggling are now a much higher risk to repay the loan.

    That's why you never borrow close to your limit as there will be no room to move if the worst happens.

• 

  tsunamisurfer on 10/09/2020 - 17:46

  +10

  Banks haven't taken a hit???

  You do understand they have expenses and interest to pay themselves? Yet they freely gave repayment holidays when they were not required to.

  I 100% support the increase.

  If you want this extra service you should pay for it.

  • 

    vinni9284 on 10/09/2020 - 18:09

    -1

    If you want this extra service you should pay for it.

    Well, how much more are they going to charge?

    How are your interest calculated and transacted daily; mortgage etc? A human? .. automation
    Furthermore, branches are closing all over the country and when you decide to do face-to-face banking, you have to wait due to 1 or 2 people behind the counter.
    They also tend to handball you to the ATM for withdrawls and charge you for printed statements.

    Soon you'll be jumping over the counter and helping the teller and doing the job for them

  • 

    cloudy on 10/09/2020 - 19:48

    +1

    To be fair, OP did say the interest continues to accrue, so it’s not lost income for banks, merely delayed.

    And for their generosity in delaying they receipt of payment, the RBA has stepped in offering them discounted cash, well below the cost of the mortgage interest rate (IIRC)

    • 

      sangohan on 10/09/2020 - 22:40

      merely delayed

      money now is worth more than money in the future - so a delay in payment is the same as a small loss, even if it's repaid in full in the future.

      • 

        cloudy on 11/09/2020 - 20:45

        Err, read it. Money in future to be repaid plus interest accrued.

• 

  Drakesy on 10/09/2020 - 17:54

  +1

  Just to clarify this is only for mortgage holders who choose to go onto an interest only payback scheme, if they pay principle + interest this doesn't apply.

  I think the Royal commission established that banks put their customer's requirements last when it comes to profitability.
  So the question is it ethically/morally right for banks to do this? no, not really.
  Will the banks care? no, not really, at the end of the day they're still handing out large dividend returns to the mum and dad investors and they want to ensure that continues even if a few people lose their houses along the way.

  With the winding back of the Royal commission recommendations such as interest only loans and affordability scores to "restart" the housing market i feel the same culture is just going to return and lax lending is going to dominate the housing bubble again until we end up going backwards like Japan as people run out of money to spend on consumables.

  • 

    Mechz on 10/09/2020 - 20:29

    +7

    If you can only afford the interest, you can't really afford it IMO.

  • 

    brad1-8tsi on 11/09/2020 - 00:39

    +2

    they're still handing out large dividend returns to the mum and dad investors

    I partly fund my income with dividends and own 3 of the big 4. One didn't pay a dividend at all, the other two significantly reduced. My overall dividend income is down 55% for the FY just ended compared to the previous period on a like for like basis.

    I'm not concerned as I have a job but your statement is incorrect and there would be many self funded retirees who would be considering throwing themselves out the window if they hadn't moved to a single story house because their hips were stuffed.

• 

  Brianqpr on 10/09/2020 - 17:57

  +1

  Its unfortunate, but people who require assistance are a higher risk to the bank and banks always charge higher interest rates to higher risk borrowers.

• 

  awangsap007 on 10/09/2020 - 18:12

  I don't know about you, but I have superannuation and I'd like balance of superannuation goes up. All these superannuation companies invest in bank shares to grow their investments.

  • 

    cloudy on 10/09/2020 - 19:50

    +1

    Lol, if you like the balance to go up probably best not to have any banks. I base that on a decade or so chart of bank shares.

  • 

    brad1-8tsi on 11/09/2020 - 00:45

    All these superannuation companies invest in bank shares to grow their investments

    They do have bank shares but it's a very small percentage of the overall pool of investments.

    Here are the top 10 shareholders of CBA. The others are similar.

    BlackRock Investment Management
    Parametric Portfolio Associates L…
    Envestnet Asset Management, Inc.
    Aberdeen Asset Investments Ltd.
    Albert D. Mason, Inc.
    Sofos Investments, Inc.
    IFP Advisors, Inc.
    Lenox Wealth Management, Inc. (Pr…
    Aperio Group LLC
    Epoch Investment Partners, Inc.

• 

  tsunamisurfer on 10/09/2020 - 18:17

  +3

  This article is damn sensationalism.

  It suggests that banks are gouging customers who opt to go interest only

  Interest Only rates have always been higher than P and I yet they make it look like the banks are targeting these poor borrowers.

• 

  TheBilly on 10/09/2020 - 18:22

  +1

  Not entirely related to the thread, but it's funny because when a property owner was struggling due to COVID, it was quite normal for people to say "oh well you took the risk, now your tenant cannot pay rent, you should pay because it didn't work out for you" but nobody said that to the bank who also took a risk like the property owner and loaned the money out to make money, you would think the same principle applies "oh well mr bank, you took a risk, your property owner cannot make repayments, so you should also not get paid now" … Similarly, the property owners could not kick out tenants that didn't pay, but the bank could repossess the house - so we didn't uphold everyone to the same standard.The only difference here was one party (the banks) have political influence and deep pockets, property owners did not … so the policy skewed in the banks favor.

  Unfortunately with most of society they wont understand this but it will just breed a harsher system. After what the banks and the government did to property owners - do you think they are going to give tenants a break next time an issue arises? it will get worse, it will be harsher, tolerance will be lower, people will hoard more wealth, create more buffers, be less charitable and so on - because the powers above didn't let anyone catch a break below. It's a nasty cycle.

  • 

    avoidfullprice on 11/09/2020 - 07:51

    If only the landlords and tenants are shareholders of the banks and they vote no bonuses given to their executives. Full circle of accountability maybe?

  • 

    Bjingo on 11/09/2020 - 13:02

    +2

    Both the bank and the property owner are in the same circumstance realistically.

    Both have the risk of not receiving payment for their investments and are unable to to do anything as of currently.

    For the landlord it is due to the memorandum on evictions which prevents them from evicting tenants for non payment due to Covid-19, however the landlord will still be accruing rent in arrears.

    For the banks it is due to the mortgages holiday which means if the borrower is impacted by Covid-19 they can stop paying the mortgage without consequences. The bank will continue to accrue interest on the loan though.

    The main difference is the banks offered the mortgage holiday themselves likely to prevent everyone defaulting on their loans which would have a cataclysmic impact on the economy but more importantly have a massive impact on the bank.

    On the other hand the property owner was forced into their situation to prevent all the people who cant afford rent due to Covid-19 from going homeless during a pandemic, which would likely cause a spike in the number of cases of the highly contagious virus, which in turn would then exponentially increase the number of cases.

    The reason it seems so different is that the bank has such a large number of investments that not receiving income right away from a few tens of thousands is manageable.

    The landlords that are having issues are the ones with over leveraged investments that require them to earn money or they cant afford the costs associated with the investment.

    It basically comes to difference in risk assessment as well as cash flow management. Both have the same issue, they are just managed differently.

    • 

      TheBilly on 11/09/2020 - 13:13

      +1

      however the landlord will still be accruing rent in arrears

      I didn't know this was the case.

      Both have the same issue, they are just managed differently.

      I agree, well explained.

• 

  whooah1979 on 10/09/2020 - 18:26

  The bank's main responsibility is to look after their stakeholder's interest.

  They're doing the right thing by asking borrowers to pay more interest. The alternative is that they resume normal repayments.

• 

  Unorthodox on 10/09/2020 - 19:10

  +2

  Sorry but the statement re: the banks not hurting is incorrect.

  They're a business like any other and it's not their responsibility to give out free money and defer receiving payments just to help out. Yes they have skin in the game via their loanbook and have a self-interest but given the choice, I'm sure they would prefer to go into the books and start to target individuals to start repayments.

  They gave borrowers a lot of leeway with a near blanket deferral for months that then got extended. They provide riskier small business loans, fund relief packages and much more.

  There are people who will suffer who have been genuinely screwed by the pandemic, and I and others feel for them. It's not the bank's responsibility to keep them at their current living standard (IE owning a home).
  To draw it out, move back in with parents temporarily and rent out for some extra cash, pick up an extra job such as ubereats versus not trying etc

  For the investors that over extended themselves, sell off the assets. That's the key message and no one should be propping up these individuals or groups who chose to speculatively invest.

• 

  Seraphin7 on 10/09/2020 - 19:21

  +2

  So here are the two big people options …

  Provide some relief, take on the extra risk, price accordingly and allow customers to work their way through what will hopefully be a temporary solution.

  OR

  Call the loan, borrower can attempt to refinance, but if they can't the bank takes the property and sells it to cut their losses.

• 

  netjock on 10/09/2020 - 19:57

  +1

  During COVID19 it seems like the only two industries not taking a hit is banks and insurance companies. If it all goes pop and banks go under don't shed a tear for these guys.

  Insurance companies aren't any better QBE, IAG, SunCorp (bank & insurance) all basket cases.

• 

  [Deactivated] on 10/09/2020 - 20:02

  +3

  There are many industries not hit by this. Mask manufacturers, sanitizing equipment distributors…

  You may not think you are doing it but everything you've said so far in this post has less to do with "I'm doing hard and need help" and more to do with "that guy is doing well, let's pull him down".

  Perhaps you don't see the bank as a group of people but it is envy all the same.

  • 

    Trying2SaveABuck on 10/09/2020 - 20:24

    Once again i got no 'dog in this fight' im one of those people making more money due to COVID19 - but i also have empathy for those who are doing it hard

    • 

      [Deactivated] on 10/09/2020 - 20:27

      +1

      Glad you're doing well in these tough times.

      I feel bad for those who are doing it tough. I don't blame you for it though.

      • 

        Trying2SaveABuck on 10/09/2020 - 21:28

        -3

        That would be fair, but the government has made it law that - landlords commercial/Residential, small/medium business, tax payers, and essentially everyone else take a hit for the needy…but the banks get a free ride? come off it mate

        The fact everyone else has been FORCED into losing money to help the ppl most affected by this virus and the banks have managed to dodgy almost every financial bullet is a joke?

        In normal circumstances i hear you and i would agree with you, the banks are a business and what not. BUT there a other businesses that have been forced to fit the bill, im about as anti socialism as it gets but when you cant evict a tenant commercial/residential who isnt paying rent but the bank can take your house/commercial property or charge you more interest becuz ur not/cant pay ur mortgage then there is something wrong with the system….

        once again i got no dog in this fight my rental is paid off but you got to see the hypocrisy in the current set up

        • 

          [Deactivated] on 10/09/2020 - 22:15

          @Trying2SaveABuck:

          That would be fair, but the government has made it law that - landlords commercial/Residential, small/medium business, tax payers, and essentially everyone else take a hit for the needy…

          No they didn't. The government made them take a hit, period. You have invented the "for the needy" bit

          but the banks get a free ride?

          So you have a problem with someone not being affected.

          im about as anti socialism as it gets

          I'm really confused where you stand. You seem conflicted on socialised cost. You want to increase tax to socialise the cost of elective procedures but you're against job seeker for elective unemployment.

          Now you want to socialize the risk of financing.

          I don't think you've given much thought to the entire concept. It comes across as if you're just reacting to whichever emotion you choose to associate with for any particular issue. Zero consistency.

          • 

            Trying2SaveABuck on 10/09/2020 - 22:48

            +1

            @[Deactivated]: ok 1st of all despite what socialist want you to think you dont have to be a left winger to think making Australia a better place is a good idea - the difference is i dont agree with 'taxing the rich to help the bludgers' - i am for providing opporunity to all regardless of social-economic upbringing

            Second - you completely ignored what i said so im going to spell it out for you - IT ISNT FAIR TO EXPECT LANDLORDS to NOT get rent but STILL PAY A LOAN - BUT if you are going to DO THAT - you cant make there loans MORE (KEY WORD SO IM GOING TO SAY IT AGAIN) MORE expensive. - Bcuz they are more likely to go bankrupt or have the property go mortgage-E.

            tbh It has nothing really to with socialism - i am a landlord if i had a loan on the property that was funded partly/wholly by rent and my tenant doesn't want to pay the rent i CANNOT evict them. - This is why i dont understand why the BANKS can charge YOU (yes you the business owner/ property investor / hard working person who has invested your time and money wisely) more due to the governments POORLY thought out moratorium on evictions.

            DOES THAT MAKE SENSE?

            NOW here is the kicker and read this slowly I AGREE (yes I AGREE) with you under normal circumstances BUT read the part on NOT BEING ABLE TO EVICT a tenant WHO COULD POTENTIALLY NOT BE PAYING 10s of thousands (even 100s of thousands of dollars) is insane. - bcuz under NORMAL (yes NORMAL) if said tenant doesn't pay rent after a few months you evict them and find a NEW (yes new) tenant to pay rent. - the way the system is now you have to wait TILL MARCH 2021 (if extended again) b4 you can even consider the eviction process.

            Now here is wear it gets complex so one again read slow - landlord insurance normally cover 6 (ill spell that 'Six') possibly 8 weeks but the ban on evictions has lasted almost 9 months…. so some people have essentially lost ~7 months of rent and now the bank is going to charge them interest for that 7 months PLUS more (YES that word again 'more') interest.

            If you cant understand that you have ZERO brains and it has nothing to do with consistency - i know you watch TV and think you are either labor/Liberal but the truth is you can like polices on BOTH sides - i tend to lean more right/center but that doesnt mean i disagree with everything the left say (most of it i dont agree with but some of it is fair enough). It is something people cant comprehend - when you have brains you FORMULATE and opinion - sadly most Australians cannot do that

            • 

              [Deactivated] on 10/09/2020 - 23:03

              +1

              @Trying2SaveABuck: Highlighting your assertions doesn't make them true.

              IT ISNT FAIR TO EXPECT LANDLORDS to NOT get rent

              No one is expecting landlords to not get rent. The moratorium on evictions isn't "rent free period". It seems you are ill informed there. Tenants still have to pay rent.

              BUT if you are going to DO THAT - you cant make there loans MORE

              By doing that, you mean the government making landlords give a free ride to tenants (which they are not). So you claim that the government is punishing the landlords and they are increasing the loans. The "they" in that last sentence is the bank. You do realise that the bank and the government are separate. You seem confused on the two.

              This is why i dont understand why the BANKS can charge YOU (yes you the business owner/ property investor) for the governments POORLY thought out moratorium on evictions.

              The banks are not charging LLs for their inability to evict tenants. They are charging property owners for their inability to make repayments. Again, the bank and the government are two separate parties. The bank doesn't care what the government has done.

              The property owners are in a predicament, they aren't getting rent but a LL without any buffer cash flow is a high risk. In the absence of present predicament, they were getting away with it. In the absence of government intervention (ie moratorium absent), the LLs may not have the rent either as there would also be an absent of job keeper. That scenario may actually create an even greater predicament for LLs.

              when you have brains you FORMULATE and opinion

              I did not claim that you don't have an opinion. You certainly have many opinions. They are just ill informed and/or inconsistent.

              • 

                Trying2SaveABuck on 10/09/2020 - 23:06

                -2

                @[Deactivated]: Oh f**k it i dont care if people are too dumb to see this is bad for them i dont care

                • 

                  [Deactivated] on 10/09/2020 - 23:08

                  @Trying2SaveABuck: When you have to resort to personal attacks, you clearly cannot defend your assertions.

                  • 

                    Trying2SaveABuck on 10/09/2020 - 23:12

                    @[Deactivated]: Thats fair i apologies i didnt mean 'you in particular' but Australians who simply refuse to see they are wrong (not saying you are wrong) becuz they get entrenched on there opinion - like ppl who think Dan Andrews is doing a good job (he isnt) but he could drown some ppls 1st born child and they will still tell you he is a good leader (he isnt)

                    Ill say this the Banks and the government are separate entities in theory but in practice it is a different story - there is a LOT of money that changes hands behind the scenes the point of this poll was to point out the government has let the banks get away with a lot perhaps due to the struggling super industries over investment in the banking sector i dont know.

                    Or

                    Perhaps if the property market collapses we will be royally screwed as a nation becuz we r essentially a economy built on debt

                    All i know is that small businesses employ around 50% of the workforce the current situation still see many of them go under - which is bad for everyone

                    • 

                      [Deactivated] on 10/09/2020 - 23:19

                      @Trying2SaveABuck: I am not an Andrews supporter by any measure.

                      There is a relationship between banks and government but there is also a relationship between government and citizens.

                      The bank charges interest based partly on risk. It does so unflinchingly. If there is any institution that can be predicted, you can bank on this one.

                      If banks are prohibited from adjusting their margins based on risks, they'd collapse overnight. No one wins, not even the property owner.

                      In short - the issue you have with the bank is better directed at the government. The government can lessen the financial strain it is placing on the population. A bank cannot suspend it's core operational protocol - margins and risks.

                      • 

                        Trying2SaveABuck on 10/09/2020 - 23:36

                        @[Deactivated]: Of course you dont like Andrews you have some common sense - believe it or not i agree with you just not with the current situation but i get where you are coming from the banks dont need to care (fair enough i wouldnt either if it was my money)

                        Of course - the real 'issue' is with the government i guess i should word it like this why are the government setting laws for business/landlords to potentially lose money (now i get the ban on evictions doesnt you live rent free but in practice this is happening and i know a LOT of people who are having issues with there tenants for whatever reason not paying rent).

                        I guess i agree with yout point the government should be protecting the business and landlords not just the tenants - esp in Victoria

• 

  brad1-8tsi on 11/09/2020 - 00:28

  On an investment I'm always willing to take on some risk knowing it can go pear shaped.

  On the family home I always borrowed with an allowance that the interest rate could go 5% above the current rate (which it has done to me in the past) and I've paid it back at that imaginary interest rate so I could get ahead on payments for when the poo hit the fan (like now). It means that I've never lived in a house as fancy as I could have done but also that I had a big safety buffer and zero mortgage stress.

  For some reason this conservative attitude to the PPOR has gone out the window even though interest rates were at an all time low. I don't get it and I don't blame the banks for bumping the interest rates if the risk is higher. If you look at how much the banks are putting aside for bad debt there's certainly a blood bath on the horizon.

• 

  Ashbargin on 11/09/2020 - 10:20

  Why do people think that business will not take a hit due to Covid. There will be plenty of business big and small that will go to the wall through all of this. Many of the loans will be funded by the big banks which will result in losses.

• 

  Peck on 11/09/2020 - 10:42

  Sadly in an income loss situation where you are unable to make repayments, you will have to restructure your loan, reorganize your debt/income situation such as moving in with the parents and renting out, or sell. That is the home buyer's risk & responsibility.

• 

  OzHunterNSW on 11/09/2020 - 12:12

  there are three types of people in the world
  1: The have's
  2: The have not's
  3: The not paid for what they have's

  • 

    whooah1979 on 11/09/2020 - 12:18

    Buy bank stocks and join the Haves club.

    • 

      [Deactivated] on 11/09/2020 - 12:59

      +1

      I buy chicken stock and join the flavour club.

• 

  Baysew on 11/09/2020 - 12:30

  From the article -

  To be fair, this is banking 101: the higher the risk, the higher the interest.

  Lets face it, if you were the lender you would expect a higher return on risker deals.

  The added interest bill is also negligible and obviously a better option for many than losing their homes.

• 

  dasher86 on 11/09/2020 - 18:22

  If you ask me banks have not taking any 'real' hit from COVID19 they have froze mortgage repayments but the interest is still expected to be paid now

  It's called cashflow.
  They're unable to invest or relend your mortgage repayment.

  • 

    whooah1979 on 11/09/2020 - 19:17

    The banks are probably the only private enterprise in the world that doesn't have a money problem. The banking system keeps less than 10% (some even as low as 3%) in cash. The rest is circulated around the world as loans.

• 

  ihbh on 11/09/2020 - 22:18

  +1

  Let's go back in time. If you wanted a loan but told the lender, I'm risky, I might just be able to pay only the interest, if that, do you think they'd lend you the money? If they did, would they lend it at a rate similar to a low risk borrower?

  Fast forward in time, the high risk borrowers have revealed themselves and the banks are just doing what any sensible lender would do.