‘recession proof' mortgages

Increasing numbers of home owners in Australia are seeking to ‘recession proof' their mortgages by getting ahead of monthly repayments as the first signs emerge of a rise in the number of homes repossessions...

The country's two biggest lenders, Westpac and the Commonwealth Bank, yesterday said that between 60 and 70 per cent of their home loan customers had chosen to maintain their repayments at previously high interest rates following the dramatic interest cuts of recent months.

But the move to create a financial buffer to offset the increased pressures on home owners threatened by unemployment is also being accompanied by rising numbers of 90-day loan delinquencies and evidence that more homes are being repossessed by lenders.

All of the major banks contacted yesterday reported that the past few months had seen more mortgage customers fail to meet their mortgage payments over the key three-month period by which their loans were considered to be in default.

Lenders such as ANZ, National Australia Bank, St George and Suncorp, as well as Westpac and the Commonwealth, emphasised that while the numbers were growing, they were coming off a historically low base.

With unemployment having already risen to over five per cent and expected to climb well above 7 per cent during the year, banks are bracing themselves for much higher arrears and more homes coming into their hands.

One of the leading lenders to middle-market home owners, St George, disclosed yesterday that the bank had seen its number of repossessed homes rise from 115 in January to 132 homes this month, having remained at a steady level of about 80 during the boom years until last October.

But St George, now part of the Westpac group, stressed that foreclosing on properties was very much an action of "last resort".

The financial situation facing lenders and customers was being helped by the marked increase in home owners who had kept their mortgage repayments at the higher rates of interest to give themselves leeway in the event of tighter domestic budgets, Westpac's head of retail and business banking, Peter Hanlon, said.

Five of the top six banks underlined the various forms of financial help available to home loan customers facing unemployment after the Commonwealth Bank said it would freeze mortgage repayments for up to a year if its clients ended up jobless.

All of the banks said repayment "holidays" and options such as interest-only loan and much-reduced monthly sums were standard practice on a case-by-case basis.

The Commonwealth had chosen to extend the option to anyone who loses their job over the coming months.

Source: www.domain.com.au