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Interest rate changes and policy response to the pandemic

Mortgage Update

Economic response to the pandemic including rate changes

 

Firstly, we hope that you and your family are safe and well and we wish you all the best through what is an extremely difficult and unprecedented time in our country’s history.
In light of the current pandemic, The Government, the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) have taken coordinated action to ensure the flow of credit in the Australian economy. Timely access to credit is vital for individuals and businesses to manage the impacts of the Coronavirus.

We are not aware of any major changes to the current lending environment as a result of the pandemic, however, we do expect the banks to adapt as the situation unfolds. This may involve tightening of lending standards, as well as reduced valuations if property prices are affected.

Interest rates

The RBA cut the cash rate twice in March, and now it rests at a record low of 0.25%. As a result lenders have reduce their variable rates accordingly. Please see below for a summary:

interest rates

Although almost every lender left their variable rates unchanged, there have been major changes to most banks fixed rates with 2 and 3 years rates between 2.09% and 2.29% for lenders.

We expect the RBA to cut the cash rate again in the coming months, unless the economic impact of the pandemic is materially less than expected.

Credit related policy response to the coronavirus

INDIVIDUALS AND HOUSEHOLDS

Freezing Your Repayments:
In response to the difficulty facing many households, APRA has been in discussions with lenders about establishing a process whereby home loan repayments can be paused for a period of up to 6 months.

The process and implications of such relief are likely to differ between each lender, however, if you are able to demonstrate financial challenges as a result of the pandemic, then there should be no issue in accessing this policy.
Because this is a very new policy, the lenders are still fleshing out how this will work, and we will continue to inform you as more information comes to light.

 

Important Points:

1. Every lender’s process is likely to be different
2. Please be aware that whatever payments accrue during the pause, will be added to your loan in some way once the period expires and you are therefore likely to pay more interest over the life of your loan.
3. APRA has recommended that relief being sought as a result of the pandemic should have no impact on your credit file or your credit score with your respective lender, but you MUST confirm this prior to proceeding.
4. If you are likely to require such assistance, be pro-active and make an enquiry early.
5. We expect that the lenders will require at least some sort of documentation to demonstrate your hardship, so be prepared when they ask.

A summary of the major banks recent correspondence regarding the above policy is below:

Commonwealth Bank

“All CBA home loan customers are now eligible to defer loan repayments by up to six months. A digital registration process is available for any home loan customer wishing to defer their repayments.” Here’s a full statement on the support CBA is providing for personal customers.

Westpac

“Westpac customers who have lost their job or suffered loss of income as a result of COVID-19 should contact us for three months deferral on their home loan mortgage repayments, with extension for a further three months available after review.” Here’s the statement and support package details in full.

NAB

“Home loan customers experiencing financial challenges will be able to pause their repayments for up to six months, with NAB checking in after three months.” Check out their statement for more details on their support package.

Other lenders

For all other lenders please check their website for more details, as APRA has recently advised they must report and publicly disclose the nature and terms of any repayment details.

BUSINESSES

Many lenders have already reduced the variable rates on small business loans as a result of last week’s rate cut. Some by as much as 2%…
Borrowers will also be able to defer principal and interest on a range of business loans for a period of up to 6 months. The process and eligibility are likely to be very similar to what is outlined above for personal lending.

Working Capital Loans / SME Guarantee Scheme:

Additionally, the Government will establish the Coronavirus SME Guarantee Scheme which will support small and medium enterprises (SMEs) to get access to working capital to help get them through the impact of the coronavirus. Under the scheme, the government will guarantee 50% of new loans issued by eligible lenders to SMEs.
The loans will be subject to the lenders credit assessment processes with the expectation that lenders will look through the cycle to sensibly take into account the uncertainty of the current economic conditions.

 

Important Points:

1. The loans will be unsecured other than the provision of a directors guarantee i.e. borrowers will not need to provide an asset as security for the loan.
2. The loans will not require payment for the first six months and will be for a maximum of $250,000 over 3 years.
3. The loans will be available for both new and existing customers.
4. The purpose of the loan must be for working capital. They will not be available for purchases or the refinance of existing debt.
5. Interest rates are anticipated to be in the mid 4% range.
6. The scheme should be operational by early April and is expected to run until 30 September.

 

We encourage you to forward this email on to anyone whom you think may benefit from this information.

We are always here to answer any questions regarding the mortgage market, your personal situation, or the regulatory response to the pandemic.
Please call us anytime if there is anything we can assist you with.

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