The financial impacts of the covid-19 health emergency will be significant and for those of us who don’t understand the small print in mortgages, insurance and superannuation, it can be daunting to know where to go for more information.
The Westender spoke with Suzy Shepherd of Yellow Brick Road about what she can tell us.
Suzy, like other many other businesses along Boundary Street is also being impacted by the emergency.
See our Q&A below.
What is your Yellow Brick Road business Suzy?
We offer a holistic service to clients where we provide advice on all scopes of their financial situation from their home loan, their investment loans, their superannuation, investments, insurances, pretty much the whole box and dice relating to anything financial, whether it’s financial coaching, financial counselling, or advice.
Like everybody who can, our team is now working remotely.
And what are you observing at the moment about the impacts of Coronavirus on people with mortgages and investments?
We are not getting a massive amount of people contacting me. However, the ones that are, now want to know what the banks are now offering. For example, there are Covid Packages with deferred payments for 3-6 months with no assessment criteria.
So, if you are just worried about your job and being retrenched the banks are now willing to discuss options with clients to alleviate that stress. The main thing to remember with this is that if your payments are deferred then after the deferral period your repayments will increase to and amortised over the remaining loan term. This will in particular assist with landlords with tenants who may be able to use these options to relieve the tenants if they are also out of work.
We are seeing a flow of cash back to banks deposit books. The banks lend money against these deposits which means they have funds to allow these above options. Some of the banks are offering better rates on deposits than previously which will assist with some cashflow for savers, still low but better than previously
There have been a few people have who are already in hardship that are reaching out to me wanting advice on how we can assist them, how those hardship provisions are actually applied for through the banks.
What can people do if they are in hardship?
If there are people who are in hardship, they will have to apply to their Bank under standard hardship provisions, which means that the banks would be looking at their assets, their liabilities, their job security, cash at bank and their ability to pay the loan”.
Usually, the hardship provisions are approved for one to six months. However, all that simply means is that the repayments are put on hold or amended to interest only depending on what you can afford. The interest or any sort of repayments on hold are capitalised after the six-month period, so people end up with an increase to loan repayments after the hardship period has ceased . People do need to be aware of that increase and budget that into your cashflow.
Most banks announced, they weren’t passing on in full or at all any of the 0.025 reduction to their variable home loan interest rates, they’re only looking at offering a reduction on fixed rate terms. Fixing your rate is potentially one way of insuring yourself and guaranteeing future repayment certainty.
The only drama with that is that you can lose offset benefits, you lose the ability to pay extra amounts like excessive lump sum income you receive from say a retrenchment payout, and you also can’t often redraw during a fixed rate term. The Reserve Bank is saying that the interest rates are going to be staying low for three years so fixing needs to be based on individual circumstances.
What are the Banks offering?
I believe all support will be offered under hardship provisions on a case by case basis. Not sure whether they have the ability to deal with the inflow of customers, you might be waiting on hold for hours and hours to get in contact with these banks. That would be my only concern for a lot of people and the frustrations around that. You could mitigate that with your existing relationship with your own broker as they may have received forms and instructions from you banks on how to manage the hardship application process. This service however is normally delivered on a fee for service basis, but in my opinion, it is worth the while if you work with a knowledgeable broker. They can often make the process so much easier for you.
What about Income Protection Insurance?
A lot of the insurers are still offering that same sorts of terms as the banks in relation to hardship provisions. One of the things people can do is stop making payments for a maximum of three months.
“No income protection policies cover you unless you are sick or injured. Involuntary unemployment is considered on a case by case basis, depending on the definitions within your insurance policy wording. Generally speaking, if you’ve got a default cover, which means that that’s been just set up through your Superfund, they often don’t have those provisions at all. If you have tailored insurances, those particular policies offer more bells and whistles. It would be worthwhile telephoning to have a chat with your financial advisor. We could potentially look at what you’re able to claim or what you can do to actually negotiate those terms with a new insurer or your existing insurer.
There are calls for landlords to suspend or freeze rents for people affected by the virus or shutdowns in any way. What’s your reaction to that?
Landlords are just normal everyday people who are similarly affected and who have investments. A large percentage are just standard Mum and Dads who are having a crack at building their own wealth for retirement. They may not have cash flow sitting around that they can fund the tenant’s inability to pay the mortgage for that period of time.
So, they would also have to apply for hardship provisions in the same way as anyone else would. Can they fund it? Should they fund it? I can’t really say yes or no that would be up to the Rental Tenancy agreement they have signed or agreed to. I guess if they were in a position where they could offer reductions that would be a great outcome for all.
However, I guess if they’ve had to apply for hardship themselves because they have no cash flow, then really what’s happening is they’re offering a free rent period for their tenants that they may never be able to recoup. This would fall under Investment Risks
So, potentially what I would suggest to landlords is, if tenants are unable to pay, they (the landlord) may potentially fall under the rent default definitions of the landlord’s policy. They should contact their general insurer to see how they can be covered under pandemic clauses in insurance policies.
This will be case by case basis for people, negotiating with their banks on what they can do with their repayments and putting them on hold or reverting them to interest only etc.
I haven’t even reached out to my own landlord yet around whether he would offer me some sort of return.
For renters, I think absolutely first start with the negotiation, reach out and ask your landlord, “what can you do to help me stay in my tenancy?”.
If we can all as individuals and community members, spend some money in your local business that would help as well.
My understanding is that restaurants are still able to offer take-out food and as such if you are in the position to continue to support those that are staying open to offer take away, we should try to work to achieve this.
Suzi said the package below will hopefully help some small businesses retain employees.
Cash boost for small and medium businesses:
- Increasing the prior cash flow boost from $25,000 up to $100,000 for eligible businesses in the form of a CREDIT against the PAYG Withheld from Wages.
- Available for those businesses employing people
- Business must have revenue of $50 million per annum or less
- Your business will receive UP TO 100% of the PAYG Withholding
- If your business pays wages but is not required to withhold any PAYG, you will still receive a minimum credit of $10,000 between March and June.
- Minimum payment you will receive will be $20,000 in total (up from $2000 from the previous scheme) for the duration of the scheme, (Minimum $10,000 by June, and $10,000 between July and October)
- Maximum CREDITS you will receive under this stimulus is $50,000 for the period March to June 2020 and another $50,000 worth of credits will be available for the period July to October 2020.
- No need to complete forms or applications, it is automatically calculated by the ATO upon lodging your BAS / IAS commencing with the March 2020 BAS
- First credit to be received on 28 April 2020
- The credit will only be available to active eligible employers established prior to 12 March 2020.
(Charities will be eligible regardless of when they were registered)
Superannuation: Early access up to $20,000
- Available to workers and sole traders suffering financial stress caused by the coronavirus pandemic
- Access will be split, $10,000 during the 2019/2020 financial year and $10,000 in the 2020/2021 year
- Application for the first portion of the money to be processed BEFORE 01 July 2020
- Funds are Tax free and will not affect your Centrelink benefits
- Employees and Sole traders who had seen their hours worked or income fall 20% or more as result of the pandemic
- Keep in mind:
- Pulling money out of super may realise losses on investments made by your fund in the prior months
- Keep checking your super balance. After 01 April 2020, insurance policies would be cancelled if your super balance falls below $6,000.
Contact your financial adviser, bank, insurance company or superannuation fund for advice on your own personal circumstances.
For Renters, Tenants Queensland is providing specific advice for those affected by covid-19 – see HERE
Image: Jan Bowman