People struggling to pay their home loans will have an extra four months to get on top of their finances as the country deals with a “bumpy” road to recovery.
The Australian Banking Association introduced this next phase of support to help customers after the six-month loan deferral period ended.
The announcement followed the RBA board decision to keep targets for the cash rate at a record low until conditions improve, as well as the yield on three-year Australian government bonds of 25 basis points.
Around 430,000 people had already deferred their mortgages due to Covid-related hardship which saw 800,000 people lose their jobs, while many others only retained their jobs through government support.
ABA chief executive Anna Bligh said the extension would not be automatic, it would be provided to those who genuinely needed some extra time, along with other options to restructure their loans.
“This next phase of bank support will avoid a ‘cliff’ for customers in September and give them the breathing space they need to work with their bank and get back on their feet financially,” Bligh said.
RBA governor Philip Lowe said despite leading economic indicators improving, the outlook remained uncertain with the recovery expected to be bumpy, and dependent upon containment of Covid-19.
“Uncertainty about the health situation and the future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans,” Lowe said.
“The pandemic is also prompting many firms to reconsider their business models.”
The governor said the reserve bank’s actions were keeping funding costs low and supporting the supply of credit to households and businesses.
“The board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band,” Lowe said.
Treasurer Josh Frydenberg is expected to make an announcement about another phase of financial support to follow on from JobKeeper and JobSeeker on 23 July.