Commonwealth Bank suggest under pressure borrowers sell

As measures like JobKeeper and loan deferrals come to an end, the nation’s biggest bank says it might be time for some property investors to consider their options.

The nation’s largest lender says support measures will continue for distressed customers once the COVID-19 deferral schemes come to an end this week. Picture: NCA NewsWire/Bianca De Marchi

Commonwealth Bank is urging under-pressure property investors to consider cashing in on rising house prices by selling into the booming market.

Putting investment properties up for sale is one of a number of options the bank is raising with customers unable to repay their home loans.

It comes as the nation’s largest lender is about to draw a line under the country’s biggest ever support package for customers.

The bank is also watching for any signs of financial distress from home loan customers whipped off JobKeeper on Sunday, as it looks to reassure borrowers that its support won’t disappear when COVID-19 loan deferral schemes come to an end this week.

As borrowers hardest hit by the pandemic face into the withdrawal of JobKeeper and the winding up of loan deferrals within days of each other, CBA is confident it can guide its customers through the challenges of the coming months.

Those employed in hard-hit sectors such as travel and tourism are the focus of its efforts, CBA group executive for retail banking Angus Sullivan told said.

“We will see the formal conclusion of that deferral program come to an end, but by no means is that the conclusion of the work that we’ve got to get done. If anything, there’s probably the same magnitude of work ahead, but it will just be with a much smaller number of customers who need a lot of individual support and attention,” Mr Sullivan said.

Already, 85 per cent of the bank’s home loan customers who were on deferrals have reverted back to their pre-COVID-19 repayments as the economic recovery has gathered pace, leaving 15 per cent who require support for a more extended period.

Just 1.6 per cent of customers who deferred loans are still doing so, with the rest either making reduced or interest-only payments, working with CBA to get payments back on track, or opting to sell their property, the bank said.

“For customers in a position of more challenging hardship, we’ve got other, more bespoke, solutions in place for them, such as a period of ongoing extension or a freeze on repayments for a period of time,” Mr Sullivan said.

“Then there’s a slightly larger chunk of people who’ve all voluntarily chosen to exit their home. And then, obviously, there’s a very small number of deferrals still being worked through.”

As the property market has gained momentum, now sitting at all-time highs, conversations with customers have inevitably included selling investment properties.

“If you’re an investor, and you’ve got an investment property that’s causing you challenges, it’s been an opportunity to take advantage of the market and sell it,” Mr Sullivan said.

“That’s a smaller cohort than the restructure proportion, but there’s still a decent chunk of customers in there who have decided to take advantage of the strong market and put their property on the market.”

The bank is not yet forcing distressed borrowers to sell the family home, with its moratorium on forced home sales in place until September 2021.

“(Selling their property) is a choice that we put on the table for customers. Given our stance around the moratorium for owner-occupied customers, we won’t be pushing (owner-occupied) customers to do that,” Mr Sullivan said.

The bank is also offering a free, external, independent property valuation service to help distressed customers understand the value of their property, Mr Sullivan said.

“That might help customers think about what’s the right path for them going forward. Recently, we’ve seen customers who opted to head down that path and they’ve had quite favourable outcomes.”

The bank is also on alert for any signs of distress among borrowers as a result of the end of JobKeeper, he added.

“We’re going to have to watch very, very closely the data over the next four to six weeks, in particular, as we see just what is the real impact of the withdrawal of that fiscal support into the economy around JobKeeper. We’re going to have to watch and see how it lands,” Mr Sullivan cautioned.

Alongside the support for its home loan borrowers is the assistance it is providing to business customers, with the lender’s group executive for business banking, Mike Vacy-Lyle, cautiously optimistic on the outlook.

“We’re starting to see a recovery. The demand for credit is definitely lifting, which means that people are investing,” Mr Vacy-Lyle said.

From a peak of $19bn of business loan deferrals, the bank is now sitting on loan repayment holidays of just $8m.

“To go from $19bn to $8m … it’s remarkable how resilient business has been. Certainly it‘s performed significantly better than our expectations,” he said.

The bank is closely watching events in Brisbane following the announcement of a snap three-day lockdown, he added.

“Clearly any sustained lockdowns will have an impact on the recovery. We anticipate that we’re going to see these whack-a-mole efforts, these short lockdowns. They’re inevitable and will continue. But as long as we don’t have a protracted statewide lockdown, we remain cautiously optimistic,” he said.

While CBA is willing to support customers still in distress, it would not keep zombie businesses afloat, Mr Vacy-Lyle warned.

“If you’ve got a viable business model and can demonstrate that, then we will support the business. COVID-19 has been the death knell for a lot of businesses that probably weren’t sustainable in the first place. Obviously, we can’t keep zombie business alive.”