Australian banks offer mortgage relief for home loans

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Australian banks will offer mortgage relief to retail customers who are losing their jobs and postponing repayments of A $ 100 billion ($ 58.1 billion) loan to small businesses during the coronavirus crisis, they said on Friday.

The measures that banks are taking to cut home loan interest rates and provide repayments are part of a national strategy to stabilize the economy, which analysts say could shrink 6 percent this year from 2019.

The state governments are also preparing relief measures for tenants in rental properties. Scott Morrison, Australia’s Prime Minister, said landlords would be among those “who will make sacrifices beforehand”.

The proposed intervention follows a sharp fall in the value of the Australian dollar this week, hitting an 18-year low against the greenback, prompting the Reserve Bank of Australia to launch a quantitative easing program to calm financial markets.

Mr Morrison said the government would propose the second stimulus package within days to cushion the financial blow to citizens facing their first recession in Australia for nearly three decades.

“It’s going to be a difficult and different time,” said Morrison.

“People who have never felt unemployed are faced with this prospect in some cases.”

Australia has seen 29 years of growth without a recession, but the rapid spread of the virus – at least 786 confirmed cases were reported in the country as of Friday – has forced the government to close its borders and gradually tighten restrictions on gatherings.

In a release on Friday, Goldman Sachs predicted the economy would contract 6 percent – the worst deterioration since the Great Depression. The bank said social distancing and broader containment measures would lead to a collapse in “social consumption,” raising unemployment from its current 5.1 percent to 8.5 percent.

This week the RBA rolled out over A $ 100 billion in monetary stimulus, which includes A $ 90 billion in cheap loans for banks to lend to small businesses, record-low interest rates of 0.25 percent and a quantitative easing program on bond purchases.

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Economists warn that the relocation caused by the fight against the coronavirus will lead to a wave of bankruptcies that will lead to a spike in unemployment. However, doing so would also put homeowners and renters under heavy pressure, as Australia has a debt-to-income ratio of nearly 200 percent (the largest portion of which is mortgage loans) – one of the highest in the world.

“High household debt makes the consequences worse if this happens, but other than that, the economic and human damage that would result is absolutely enormous,” said Sarah Hunter, economist at BIS Oxford Economics.

Australian tax authorities are easing regulatory requirements for commercial banks, including capital requirements during the crisis. RBA Governor Philip Lowe said this week the banking system is strong and its large capital and liquidity buffers could be used to prop up the economy.

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