Getting Through Coronavirus Together (Apart)
As the COVID-19 pandemic evolves, the Australian economy is being ravaged in a way that has not been seen in any, or very few, of our lifetimes. To name a few impacts, we’re seeing a spike in unemployment, an already reactive property market and a historically low cash rate, sitting at 0.25% at the time of writing.
In some way or another, your life will be impacted. So, how does your property, home loan or prospective home loan stand to be affected? Don’t worry, it’s not all bad news.
Reserve Bank of Australia cut rates to 0.25%
The RBA slashed the cash rate to just 25 basis points in a move that RBA Governor Philip Lowe said will help the economy regain its footing amid widespread disruption. This historically low cash rate has brought about the lowest mortgage rates Australia has ever seen. Financial institutions who were at first hesitant to pass rate cuts to customers pre COVID-19 are now doing so, and in a big way, with rates in the mid 2%s already being seen.
We’re here to help. Chances are that you’re paying too much on your existing mortgage given the recent interest rate cuts. Contact us and we’ll let you know what variable rate you could be on. Things get trickier if your rate is fixed, but depending on the term and conditions of the fixed portion, we may be able to find a cost effective solution.
Job losses decrease property market demand and increase the risk of mortgage defaults
Collectively, we’re tightening our belts and generally not buying property. A huge surge of unemployment saw a decrease in demand for real estate, with auction clearance rates decreasing from an average of 75% throughout February 2020, to 60% throughout March. People are hesitant (or unable) to make big-ticket purchases when money is tight. We say people are generally not buying property – now is actually on opportune time for first home buyers (assuming job security), so if you’re ready to make your move, contact us and we’ll let you know what your borrowing capacity and potential repayments look like.
As for current homeowners, the reduction in employment (either reduced hours or moving to a JobKeeper allowance) could mean a struggle to meet current mortgage repayments. In the usual economy, the bank would be entitled to sell a borrower’s house to recover their debt. This sounds like awfully scary scenario, especially for those currently experiencing mortgage stress. However, read on.
Banks offer mortgage deferrals
The big four banks have announced mortgage payment deferrals for up to six months to help lessen financial burden for unemployed homeowners and to give landlords breathing room to provide tenants rent relief. The government is urging foreign institutions to participate also. This again is unprecedented and a welcome development by many households and tenants.
It is worth noting that some of the banks will be capitalising interest, meaning the unpaid interest will be added to the principal amount which will either increase repayments once they are resumed or increase the length of the loan term.
OK, let’s move through this thing together (apart).
These are unique circumstances we’re dealing with. Drastic measures have been taken by the Government in a constantly changing, delicate balancing act between protecting the safety of the public and mitigating inevitable economic fallout. Financial institutions are also coming to the party and it is in their best interests to see debts recovered, even if in the slightly longer term.
As we’ve said, this situation is unprecedented, so it is essential to seek professional advice before making any financial decisions. That’s where we come in (for some of the journey, anyway). If you’re purchasing property or looking to refinance your existing mortgage, contact It’s Simple today.