Financial Hardship during COVID-19

In light of the current unprecedented global events as a result of COVID-19, we wanted to ensure you that we are here to support you for the long haul. It is becoming increasingly evident this is going to be a marathon, not a sprint and that we need to prepare for increasing unemployment, and reduced incomes. With this in mind, many of you may struggle to make your home loan repayments so we wanted to explore the options available to you.

Payment Deferrals
If you have recently lost your job or found your income substantially reduced you may be able to defer your home loan repayments for 3-6 months. All lenders have a hardship department that can assist with this process. A link of their contact details can be found here. We are aware that bank call centres are struggling to keep up with call volumes, and in many cases banks have now started to forward us forms for you to complete and lodge. Please call us first to see if we can assist.

If your income hasn’t been affected yet, and you are unable to access deferrals through hardship but you still want to minimise your cashflow expenditure by reducing your repayments there are other options available to you.

Redraw
If you have been paying over and above your minimum monthly home loan repayments you may have funds available in either redraw, or sitting in your offset account. If you reduce your loan repayments to the minimum amount you can then use these funds to make your future loan repayments.

Fixed Rates
With the recent RBA rate reductions many of the banks have dropped their interest rates, with some 1, 2 and 3 year rates in the low 2’s. For most people this is around 1% lower than they are currently paying. Locking in to one of these low rates, could reduce your monthly repayments by hundreds of dollars. Note: there are other factors to consider before fixing, such as break costs, so please ensure you call us first before proceeding with this option.

Superannuation
Legislation passed this week enables individuals to access up to $10,000 before 1 July 2020, and then $10,000 after July 2020 if their income has ceased or fallen by 20%. This is done via the ATO myGov website and will be available from mid-April 2020. More information regarding eligibility and the process can be found here.

PAYG withholding variation
If you have had your work hours reduced but you are not technically unemployed (so unable to access jobseeker payments) you can apply to the ATO to have the tax withheld from you pay for the rest of the year so you don’t have to wait to get a refund when you lodge your tax. More information regarding this can be found here.

Finally, know that you are not alone and you do have options. We are only a phone call or email away and happy to answer your queries. You need a broker now more than ever!

Is Australia having its own financial crisis in 2017?

We all lived through the infamous GFC of 200. Which just to refresh some memories, was a worldwide crisis where the banking industry lost confidence in itself, as a consequence of convoluted funding schemes (called subprime loan securitisations), which their own internal banking brain trusts had created.

Basically, these funding schemes resulted in there being trillions of money’s lent into unworthy credit risks, which lead to just about every bank in the world having to write hundreds of millions, and in some cases billions, in bad debts, off their balance sheets simultaneously.

Thankfully here in Australia, the Federal Government gave the bank’s own depositors, a Government Guarantee for their deposits, which enabled the four pillars of the Australian banking industry to quickly go back to the Capital markets, and raise additional capital with share issues, and then simply start lending again with their revamped balance sheets.

Some international banks did not survive the inevitable run on the Banks, which follows the traditional wide spread fear of a credit collapse, which was being mooted, with Lehman Bros being the most famous casualty.

There were a host of others including HBOS and Bank of Scotland which would have collapsed if they were not bailed out.

Right now, in Australia, there are some worrying signs, re the health of our financial sector, which is leading to speculation that maybe the Australian Banking sector has again allowed itself to get carried away with recent lending policies which have led to concern about future property market sustainability.

Indeed on, March 20th, The Treasurer Scott Morrison, announced that he is in discussions with Council of Financial Regulators about the high proportion of investor loans on which only interest is being repaid. This combined with recent annual property value rises of between 13 and 18% in Sydney, Melbourne and Canberra particularly, has flagged the likelihood of Bank’s tightening the rules to try and restrict investment loans.

It has already started, and we are seeing

  • Interest rates being increased on investor loans
  • Tough property valuations being completed
  • higher deposits being required
  • Insistence of borrowers being able to demonstrate an ability to meet loan repayments on a principal and interest basis.
  • a limit being placed on the ratio of ‘investment’ lending being conducted, in comparison to owner / occupied lending.

On the same day, the Chairman of ASIC spoke at their Annual forum, about what he considers to be the international ‘norm’, in terms of what the average housing price as a ratio against average income, should be. These figures are generally in the range of 5 – 6 times.

His observation that this ratio in the USA is currently about 5 times. In Melbourne it is currently 9.5, and in Sydney, 12.2. As a point of comparison, in Perth it is between 6.0 and 6.5 times. This is leading to use of the terminology “Housing Bubble”.

It is obvious that the situation is worse and more risky in some parts of the country than others, but it again seems that Banks are bringing in new lending rules, which are standardised around the country, regardless of the local situation.

So yet again, somebody sneezes in Sydney, and we in the West, get diagnosed with pneumonia.

We are seeing ridiculous approval conditions being imposed on modest investment transactions in the Perth Metro area, and even more ridiculous and negative property valuations being produced.

And guess what. It’s already having an effect, but is a slowing of an already stagnant economy what we really want and need at the moment, particularly here in WA?

And the thing which really irks me is that whatever lending has been conducted to allow for this ‘over heating’ of the investment property market, has been conducted by the Banks themselves. It’s been their own policies, their own products, their own marketing and distribution systems, which has lent the money to fund this surge.

And now the whole market suffers because of Bank’s previous policies.

That’s my view point.

Muzza from Perth

Three Tips to increase your serviceability as a property investor

With interest rates at an all-time low but with banks tightening their lending requirements there are some simple strategies to ensure your serviceability doesn’t stop you from gaining finance

  1. Cancel any credit cards that you don’t need
    Even if your credit card isn’t being used, the banks will take 3% of the limit as funds at your disposal to service a loan.
  2. Consolidate unsecured debts
    Alternatively, if you have outstanding balances on different credit cards or personal loans, it is wise to consolidate these into your mortgage.
  3. Ensure your tax returns are lodge on time
    In some circumstances two recent payslips will not be sufficient to a lender therefore being able to provide recent years’ tax returns will provide an accurate serviceability picture.