Blog

April 14, 2020

Panic and Financial Solutions Don’t Mix Well…

Thanks to our friends at Centrepoint Finance Yeppoon

As many of us prepare to work and live in isolation for an unknown timeframe, we firstly want to thank those in the health and foodservice industries for keeping us safe and fed.

A special mention goes out to those who are entertaining us online with their creative ideas on beating the isolation blues.

On a more serious note, the next priority for your health and safety is your financial wellbeing. Without that, your health and safety suffer even more.

We have been inundated with calls to help those in need of urgent financial assistance and we want to ensure you have the correct information to give you the best help as soon as we can.

Here are just some of the important things you, your family and friends need to know before you start panicking or rushing out to find your own financial solution without our expert help.

Remember, a lot of what you may be reading, watching and listening to at the moment is based on fear. So it is imperative you seek sound, trusted advice.

Over time, things will get better and we will return to some kind of familiarity.

GENERAL INFORMATION

1. Financial institutions have been landed with having to provide NEW options for financial difficulty with little to no notice.

They will be inundated with enquiries – just like we are – and they are here to help – just like we are. So we ask you to please be patient during these unusually busy times.

2. Most lenders already have financial hardship policies in place, however, the usual criteria will be relaxed and most lenders will make it easier to access these if you are in true hardship due to COVID-19.

Banks and lenders across Australia are offering a deferral of repayments from three to six months for those who qualify. If you are not sure how deferral payments will affect your loan, please contact us to guide you through it.

3. We have been advised that your credit file WILL NOT be affected if you apply for or accept new financial arrangements due to hardship created from COVID-19.

4. Nothing is FREE. A repayment ‘holiday’ DOES NOT MEAN you will not have to pay the interest back.

- The interest still needs to be paid back at some point in time.

All lenders are different in how they will want you to repay this delayed interest payment. For some, it will be capitalised on your existing loan and will require higher repayments at the end of the repayment holiday. Others will extend the term of the loan so your repayments don’t change.

- You will end up with a larger loan at the end of the payment freeze period.

There could be many options available to you before looking at a mortgage freeze.

5. Be cautious and understand the consequences before applying for financial hardship. We don’t want you to make your financial situation worse in the long term. Explore all options with us first.

HOME LOAN CLIENTS

If you have lost your job, closed your business and can’t meet your mortgage payments you will need to apply directly to your lender.

We can of course assist you, send you their application form or online link, help with your application, assist you with the conversation required or find your loan document numbers if we have them on file.

Before offering any financial assistance they may ask you to use any redraw facility or cash and savings you already have in place. We recommend checking your finances before asking for a mortgage payment freeze to see if you can manage for a while longer or contact us as there may be other options available to you.

Tap into additional cash that you may require later on by placing your redraw funds into an offset account. This may provide a little more safety as lenders can often and easily change policies on having access to your redraw facility. Again, before taking any action, please ask for our guidance first as every person’s situation and loan facility is different.

If you still have gainful employment but are worried about the future, then you need to talk to us to consider any of the following options that may be possible for you:

i. refinancing – interest rates have tumbled – NOW is the time to take advantage of this option

ii. negotiating on your behalf with your lender for a lower interest rate

iii. consolidating debt (and stop using credit cards or spending any money on unnecessary items)

iv. switching to interest-only repayments

v. asking to extend your loan term to reduce your repayments or request a repayment holiday. However, these options come with additional longer-term costs as mentioned.

INVESTORS

1. If your investment property is neutral or positively geared – well done you should be fine – don’t panic.

2. Consider refinancing to ease the repayments.

3. Consider applying to go to interest only if you are not already doing so and if it is possible.

4. Make sure you have LANDLORD insurance – before they have an opportunity to change their policies. Most policies will pay you for a period of time for rental default. This is one absolute must in these times of unemployment. Please check your policy before your property manager calls so you know your options.

5. At the time of writing, the government has only been talking about rental assistance but nothing has yet been determined.

Avoid engagement with your tenant to see if they are ok. This will prevent opening the conversation to negotiation.

If they are currently employed and still earning an income then they still have the capacity and obligation to pay the rent.

If your tenant loses their job – then get ready to negotiate their current weekly rent or risk losing them as a tenant and having your property vacant for several months.

Tenants are still obliged to pay their rent, but you should be prepared to negotiate the terms.

Good property managers will negotiate a reduction for a small period of time until they are re-employed, however, they will still be expected to repay the accrued debt once they are back in gainful employment.

Remember to be nice and be kind. We are all hurting. No one has asked for this to happen to them.

And please work with your property manager. They will be doing their best to help you and your tenant.

Make sure you are on their preferred list of landlords to help.

Similar to the mortgage payment freeze, the debt still accrues and needs to be paid back, but at least you have someone still living in your property right now and some contribution towards your loan repayments.

Remember the government has doubled the weekly unemployment benefit so they will have the income to support some rental payments.

Be creative with incentives to have your property rented out first or to keep the rent at the same price:

- Offer to pay for the internet/Netflix/TV subscriptions

- Offer to pay for the first quarter electricity/water bill

- Keeping your current rental income as high as possible with incentives will be a small price to pay over the long term – and talk to your accountant to see if it is also tax-deductible

6. Don’t sell unless you have to. The worst thing to do in a crisis is to sell up if you don’t need to. With reduced access to open homes and buyers cautious without jobs, you may not get the price you are seeking.

7. If you do need to sell to free up cash or pay down loans, manage your own expectations before proceeding.

There will still be buyers out there and real estate agents have been quick to adopt one on one appointments and create online auctions.

TIP - Look at reducing your financial outlay by considering all financing options first.

Small and medium-sized enterprises (SMEs)

There are many relief measures for small businesses.

It is important to the Australian economy to look after small and medium-sized businesses. To date, 690,000 businesses have been employing over 7.8 million of the Australian population.

All financial institutions, the Australian Government and the ATO have pledged their support to you as a business owner.

The Australian Government is now providing up to $100,000 to eligible small and medium-sized businesses and not-for-profit organisations (including charities) that employ people with a minimum payment of $20,000.

Highlights:

- The cash flow boost is intended to help you to keep operating, pay rent, electricity and other bills and to retain staff.

So please check your eligibility to help you stay in business before making rash business decisions.

- The cash flow boost provides a tax-free payment to employers and is automatically calculated by the Australian Taxation Office (ATO). There are no new forms required.

- Eligibility will generally be based on prior year turnover.

- The payments will only be available to active eligible employers established prior to 12 March 2020.

- To qualify for the additional payment, the entity must continue to be active.

- For monthly activity statement lodgers, the additional payments will be delivered as an automatic credit in the activity statement system. This will be equal to a quarter of their total initial Boosting Cash Flow for Employers payment following the lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements (up to a total of $50,000).

- The ATO will deliver the payment as a credit to the entity upon lodgement of their activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.

- Eligible employers of apprentices can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage paid during the 9 months from 1 January 2020 to 30 September 2020.

- The subsidy will be available to small businesses employing fewer than 20 full-time employees who retain an apprentice or trainee. The apprentice or trainee must have been in training with a small business as of 1 March 2020.

Click here to download the CASHFLOW assistance for businesses Fact Sheet

The newest addition for small business (at the time of writing) is that businesses are set to receive a fortnightly wage subsidy of up to $1,500 a fortnight per employee in a bid to prevent millions of people from losing their jobs during the coronavirus pandemic. To qualify for the JobKeeper program your turnover must be dropped by 30% since January 2020.

Click here for the JOBKEEPER PAYMENT FACT SHEET

EARLY ACCESS TO SUPER

No doubt you have heard and may even be considering this one as well.

Individuals suffering from COVID-induced financial stress will be able to access up to $20,000 of their superannuation.

Eligible individuals can apply online through myGov for access to:

· $10,000 of their superannuation before 1 July 2020

· $10,000 of their superannuation after 1 July 2020 until 24 September 2020

These early withdrawals will be tax-free.

Eligible Australians include:

- those who are unemployed or

- made redundant or whose working hours have been reduced by at least 20% since 1 January 2020.

Sole traders will also be eligible if, since 1 January, their business has been suspended or they’ve had a reduction in turnover of 20% or more.

However, early access to your precious retirement savings should be used as an ABSOLUTE LAST RESORT.

You need to consider the long term ramifications of this decision. Depending on your age and situation, if you take $10,000 to $20,000 from your super account now you may never get the opportunity to replace the long term effects of this action.

Please seek advice before considering this option.

Firstly, see if you can:

· draw on other savings

· access other government relief packages

· tap into any equity you might have

The best person to speak with about these changes would be your financial advisor.

Please contact us to put you in touch with our recommended specialist.

NERVOUS ABOUT LETTING US OR YOUR LENDER KNOW YOU ARE IN TROUBLE?

Then don’t be.

We are all in this together.

Your lender wants to partner with you through this difficult time. Getting people back to work and keeping them in their homes is what is in the best interest of all Australians.

However, if you are worried, it’s very important that you contact us as soon as possible. The earlier you get help the more assistance we will be able to provide.

To make your enquiry and application more successful, we recommend you look at your lender’s website first to see what assistance your lender offers. THEN please contact us afterwards so we can explain the pros and cons of any changes you want to consider.

We want to help you make educated and informed decisions about your finances.

We will be in touch soon, and please feel free to reach out if you need help.

Our thoughts are with you and your family during these challenging times.

After all, 
YOU Matter ...

 

Source | Centrepoint Finance | Shane Nipperess | 1st April 2020 |