CBA allows interest-only switch as banks prepare for COVID-19 'check-ins' | clancyyeates
Commonwealth Bank will allow borrowers who deferred repayments under an emergency scheme to temporarily switch to interest-only loans without the usual credit checks, as lenders scramble to avoid being swamped by distressed loans later this year.
Despite recent economic data suggesting the financial hit from COVID-19 on Australia has been less dire than feared, banks still face the daunting prospect of a sharp rise in soured loans later this year when the repayment "holidays" end.One way of softening the impact is for banks is to be more lenient in allowing customers to pay only interest for a year.
CBA's move, which is similar to changes announced by Westpac last week, comes after regulators that were previously cracking down on interest-only lending are now giving banks more leeway due to the pandemic. However, Mr North pointed out that interest-only loans can also be higher risk for borrowers and banks. If house prices fall — which major banks are forecasting — interest-only loans are at higher risk of ending up in negative equity because, the loan balance does not fall over time.
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