Good Morning,
I hope this finds you all healthy and coping with the raft of measures implemented over the last week.
I for one certainly hope that we don’t see anything more drastic than what we are seeing as current, happen in the weeks to come.
The Fed Government is surely on the front foot here with Stimulus measures a plenty.
From this end there are still some gaping holes in those offerings, especially around the 50% guarantee against unsecured business borrowing up to $250k. I have been discussing this with my Banking relationship managers over the last week as to how this may work.
There is nothing official from the banks just yet, however I think the following while it may seem obvious, needs to be concidered. While borrowing may be unsecured, it will still be based on the affordability/serviceability of the borrower.
$250k will NOT be available to everyone. If a loan is taken over 3 years with a 6 month repayment holiday then they must be able to be repaid in 2.5 years. The 50% guarantee of the government will assist in reducing the unsecured rate, I don’t imagine for a minute though that this will be equivalent to home loan rates.
I do look forward to seeing what this will actually be when the lenders announce their policy on this.
Nearly all lenders have announced their COVID-19 packages for borrowers affected by the current social restrictions. There is certainly empathy here from the lenders, with many loan relief packages being around repayment deferrals for up to 6 months, however the scope of this is not limited to this only.
I have had in the last week many, many phone calls from worried and affected clients. All lenders so far are being co-operative and sensitive to clients. APRA has stated that a repayment holiday or deferral need not impact a client’s credit file (see article here).
Though so far would seem to be up to the lenders. I would hate to see thousands of clients impacted with negative credit files because of this. I came across this article through the week that some clients may find useful. However if you are concerned or worried speak to me or your lender and come up with a plan that will see you get over this speed hump.
Repayment holidays or deferrals should be treated with caution. A deferral or holiday doesn’t mean that interest charges will stop. In fact if you stop paying, then it is a certainty that you will incur more interest over that time, and unless you are ahead in your repayments then your loan could very well increase. Most of the discussions I have had with clients over the last week centred around ‘if you can still afford to make the repayments then keep doing so’, maybe even take advantage of a low 1 yr or 2yr fixed rate. Only use the repayment deferral or repayment holiday if you absolutely must.
Several lenders have also come out this week announced restrictions for some borrowers effective immediately. Those restrictions apply for borrowers employed by businesses ‘restricted from opening’ i.e If they are casually employed, Gym’s, some retail or hospitality.
Bluestone have raised their rates citing the cost of wholesale funding increase, I imagine that they won’t be the only ones.
Like anything, this too shall pass.
The good news is that many lenders have decreased their fixed rates. 2.49% for 2 and 3 yr fixed is now the norm.
Newcastle Permanent have gone to 2.29% on 1yr fixed 2.34% on 2 yr fixed and 2.39% on 3 yr fixed!
ANZ are still a Stand out at 2.19% on their 2 yr fixed.
Many lenders have increased their savings account interest rates especially for term deposits. Who would have thought that a 1.7% savings interest rate would sound good!
I certainly hope that the Governments push with $15 billion dollars for the Australian Office of Financial Management (AOFM) to invest, can assist lenders in the way it was meant. So by reducing some of the wholesale costs of funding, and flow on to business and borrowers without the need to raise rates like Bluestone has needed too. One would hope that this flows on when the lenders release their policies around this.
As I mentioned last week some of the SME lenders like Finstro, Capify and Prospa will allow a business to make application now and keep the funds on ice for up to 6 months. This could be a good fall back position for any business who thinks that they may need cash flow.
I would also suggest that if you haven’t spoken with your accountant, that you do so now and find out how to make the most of the stimulus and keep the wheels turning for you and your business’
I hope this coming week see you all in continuing health.
As always I am here of you need anything.
JC
Scenarios and interest rates quoted above are suggestions and constitute general advice only.
Justin
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