How will COVID-19 impact on your banking and loans? [MASTERCLASS]

If you have a home loan, or investment loan, you are probably wondering how COVID -19 impact on your banking and loans.

What’s going to happen if you lose your job and your income?

What are the banks going to do if your tenant doesn’t pay their rent?

That’s exactly what I discussed today with Andrew Mirams, director of Intuitive Finance. as we chat about how COVID-19 will impact the banking system and your loans

We’re living in interesting times aren’t we?

If history has taught us anything, it’s that the only constant in life is change.

Over the course of the last century alone there have been a litany of challenges and numerous disasters, all of which have one thing in common – they’ve all passed. Coronavirus2

Some months from now – it’s impossible to predict the true timeline are you six months it could be a year or more but it’s sometime in the future, the current situation we face with Covid-19 will also have passed.

As with the bush fires, it will have left in its wake a trail of debris and destruction which we ought not take lightly, but it will pass.

As property investors, another area of constant change seems to be the world of finance, banking and lending

Watch today’s MASTERCLASS as I ask Andrew Mirams some of the common questions that we are being asked about finance in these challenging times, including: 

Are the banks still open for business?

 Yes they are.

 The banks have been given a lifeline… $90 billion has been provided to the banks to go out there and lend money and stimulate the economy and at a very cheap interest rate.

It’s been difficult for many investors to borrow recently, considering the tighter credit policies for responsible lending, but now APRA and ASIC – the bank regulators – are taking a common sense approach in these uncertain times, and our banks tare lending more freely in the short term.

What options are available if you run into financial difficulty?

  1. Use your offset account or a redraw facility.

 We always recommend that our clients have an offset accounts as a financial buffer to see them through difficult times just like this so many will have funds available to redraw to see them through

 2. Reduce your repayments.

If you are paying more than the minimum required repayment on your mortgage, as many people are since they’ve kept up the same repayments as interest rates drop, you can reduce the repayment to the minimum repayment anytime without charge with your lender.

The majority of lenders allow you to do this online.

If you choose minimum repayment, be careful to ensure you don’t have excess redraw in your loan account, as this can make the new repayment based on your outstanding balance – causing the redraw to be locked or removed entirely – simple fix, if you have an offset account, you can place the redraw funds into this account.

  1. Repayment holidays or payment pauses

You need to understand that these aren’t the lenders waiving your repayments or obligations but simply deferring them.

For example, if you take a 6 month payment pause on your loan, then the interest still is charged and capitalised (or added) to your loan.

At the end of this period, then you will then be required to make your normal repayments, PLUS catch up those that you haven’t made over this time. It’s important to understand this.

You will be asked still if you are under some hardship based on the Virus. i.e. have you lost your job or been affected in any other way.

It’s not just a pause that anyone or everyone can take.

You will be recommended to redraw your loan first if you’ve made extra repayments or use your cash/offset or buffer before going into these measures.

Should you consider the current low fixed rate offerings by the banks?

Be wary before entering any of these as by accepting a fixed rate, you also accept those terms and changes cannot be made to your loans.

  • You cannot have an offset account linked to the fixed rate and this can be very costly to many people with cash balances.Recession Australia Note Money Economy Squeeze Tighten Save Saving Budget Cut 300x200
  • Paused repayments are for “Owner Occupier” loans and not investment loans at this stage.
  • If you have a fixed rate now? Then any changes to terms of payment holidays could incur break costs.
  • Rate cuts announced for home, investment and small business loans. Don’t be complacent now please, you still need to check these and advise us of any changes. There are some great offers available and refinancing might just give you the opportunity to see this crisis through.
  • Don’t make a short term decision that could have long term repercussions.

At the end of the day, all banks and lenders are here to help all Australians through this, but it’s important for people to understand the consequences of the actions they take now.

Will this affect your credit rating?

No, asking to pause or postpone your interest payments at present will not affect your long-term credit rating as it normally would do.

The banks understand the unusual circumstances we are all experiencing.

Here’s some other things that you can do:-

  • Don’t make quick or irrational decisions. These are testing times but keeping your calm right now will assist you most. chess-game-leader-investment-strategy-win-success-negotiate
  • Right now, don’t fix your interest rate. Andrew is saying don’t in the future but let’s just get through the uncertainty first.
  • Many people are paying additional repayments to their loan(s). If you wish to reduce these, the process to do so is quite simple and with most lenders, can even be done via your internet banking. This can/will help with your cash flow needs.
  • If you need extra cash and have redraw available, use it! That’s why it’s there.
  • Use your buffers – again this is why you have them, to see you through in extraordinary times.
  • Match your repayments to your pay. i.e. if you get paid weekly or fortnightly, change your loan repayments to the day after payday as this can assist you manage your cash flow better.

If you’re in a good financial position, have a sound job this is a great time to take advantage of the property markets.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

If you’re wondering what will happen to property in 2020–2021 you are not alone.

You can trust the team at Metropole to provide you with direction, guidance and results.

In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

  1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now!  This will give you direction, results and more certainty. Click here to learn more Metropole
  2. Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property.  Click here to learn how we can help you.
  3. Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
  4. Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.

NOW READ:

Is Coronavirus driving a recession, depression or an economic hit like no other?

How coronavirus has shifted our property markets

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'How will COVID-19 impact on your banking and loans? [MASTERCLASS]' have 11 comments

    Avatar

    March 29, 2020 Alex

    What about switching from P&I back to Interest Only. Can this be done for debt that has gone past its initial Int Only period?

    Reply

      Michael Yardney

      March 29, 2020 Michael Yardney

      Alex – the banks may allow this for up to 6 months to see you through, but then will probably ask you to resume P&I unless you renegotiate a new loan with them or another bank

      Reply

        Avatar

        March 29, 2020 Alex

        Thanks Michael and Andrew
        So good to get some straight thinking in this different (and interesting!!) time.

        Reply

    Avatar

    March 28, 2020 Jan

    How about those who are self funded (with no day job) relying SOLEY off rental income to feed their families/function while (the notion) that if a tenant loses their job, they can transfer THEIR problem to the landlord whereby they get to live scot free in a landlords hard earned property till everything’s back to normal while the landlord starves yet also has to hold that property. Six months is a b. long time! Landlords are not there to provide free social housing. This idea causes the tenant to rack up a debt for rental arrears (plus the R/E agent won’t get paid) and everyone is stressed. Better that Treasury provide rental assistance so that this tenant/landlord issue is more manageable and the economic wheel keeps turning. In a nut shell the proposal is that the tenant stops paying rent so they don’t have to line up for a Centerlink payment but now the landlord does. I think its a way better idea to have rents subsidised by Treasury and rather than freeze rent payments to the landlord, maybe halve them or tenant pays a percentage of rent (rather than zero rent) so the landlord can eat and the debt for the tenant at the end of the day won’t be impossible to meet. (The Centerlink rent subsidy for the tenant could pay the landlord).

    Reply

      Michael Yardney

      March 29, 2020 Michael Yardney

      Yes Jan, there are some difficult times ahead for all of us – it will be interesting to see how the government handles this

      Reply

    Avatar

    March 28, 2020 John Beattie

    Thanks Michael,
    Appreciate what your saying…..just thought Andrew might have heard a whisper. Will hold off a little longer. Sorry about the 2 comments. Had trouble with error messages with captcha.

    Reply

    Avatar

    March 28, 2020 John Beattie

    what about fixed rates ? Will banks reduce investor fixed rates in line with normal buyers?

    Reply

    Avatar

    March 28, 2020 John Beattie

    Hi Michael,
    You didn’t ask Andrew about fixed interest rates for investors on interest only loans. Are they likely to come down the same as for people paying principal & interest loans? I note the property council ? are suggesting banks do this and or make those rates the same as for non investors. Currently there’s a difference of about 1% difference between the too and investors have been paying a premium for some time now. For those of us considering fixing rates this represents a huge difference in cashflow, especially considering we may have to subsidise our tenants for some time. Can you please clarify this or shed some light on this? Thanks and regards John

    Reply

      Michael Yardney

      March 28, 2020 Michael Yardney

      John, I know you’d like to know the answer, but that would only be speculation as we don’t know what the banks are going to do.

      What Andrew and I were trying to do was tell you what we know, rather than guess what may happen.

      The advice I have from my bank is that fixed rates are not going to go down. (at present)

      Reply


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