He said up to 730,000 interest-only loans will expire this year and be converted to principal and interest.
“That means these borrowers will have to individually divert thousands of dollars from their disposable income into making principal repayments,” he told The Sydney Morning Herald and The Age.
“At the same time, the hundreds of thousands of investors who have been forced into converting their interest-only loans into principal and interest loans over the past few years are also individually paying thousands of dollars in principal repayments.”
Senator Smith said the major banks may have to be called before a Senate committee to explain how they have behaved through the coronavirus pandemic.
He said as banks had gained access to $90 billion through the Reserve Bank, on top of benefiting from other government programs aimed at assisting the overall economy, they had been effectively protected while other industries and companies suffered.
A finance expert with financial services monitoring firm Canstar, Steve Mickenbecker, said the proposal was a “no-brainer”.
He said if interest and principal loans were converted to interest-only, many investors would see their monthly repayments halved.
“That would give the investors financial relief and help them to provide support to their tenants. If you moved to interest-only you deliver a big boost to investors that can be passed through. I think this is a dead-set right move,” he said.
Reserve Bank governor Philip Lowe said on Tuesday night restrictions on interest-only loans had been lifted over the past two years, adding there was nothing to prevent such a policy.
Australian Banking Association chief executive Anna Bligh said lenders were already offering businesses and investors options to help them get through the current pandemic.
“Investors whose tenants are unable to pay rent as a result of COVID-19 are able to access a six-month deferral to mortgage repayments, including both principal and interest, to help them get through to the other side of this crisis,” she said.
“Interest-only options are still available to customers, with banks needing to assess a request to remain on interest-only repayments on a case-by-case basis in line with regulator’s prudential requirements and guidance.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.