COVID19 – Advice and guidance for finance hardship applications

Over the past 2 weeks we have fielded numerous enquiries from our clients with questions and concerns about how to approach lenders for hardship support relating to COVID19 and the impact this may have on their mortgages, rates, credit histories etc.

To ensure our clients get the most accurate advice, AXTON Finance have been in regular contact with the banks and lending institutions we work with and with whom all of our clients have mortgages.

In our earlier communications we noted that a hardship repayment holiday is not ‘interest free’ and that such a holiday may extend the term of the loan or the interest you pay over the life of the loan. As such, it is important to understand what this means for your long term, and that if you have some capacity to make repayments towards your loans, then it may serve you well to do so.

The encouraging fact to note is that all lenders have in place support for borrowers to receive repayment assistance.

The most important action anyone can take under these trying circumstances is to proactively communicate with your lender, and to do so before any repayments are delayed or missed.

Banks and lenders approach and support to hardship is evolving, and as we write this, most lenders are treating the conversion of a principle loan repayment to interest only as ‘credit critical’ (this means such a change to your loan contract will only be permitted through a full assessment via a loan application). There is some political push from the government towards the banks and lenders to simplify this process, however as it stands a full assessment is usually required.

What is useful to understand, however, is that in applying for and obtaining hardship assistance means whilst it is not necessary for you to make a repayment during the hardship period, you may be permitted to.

The upside here is that in remaining under a P&I agreement, you will be incurring interest at a lower rate (Interest only terms tend to be priced higher for risk). So you may effectively be getting interest only terms at a lower rate without actually needing to go through a full loan assessment (providing you meet the hardship criteria).

There is some inconsistency between lenders as to how they treat the repayment. Some lenders advise these payments will be available for the borrowers during and after the hardship period if they needed to redraw. Others have advised these are not. So it is very important to ask your lender what availability you will have to cash paid into your loan during or after a hardship period. They may even take the view that if you can make a repayment, you may not qualify for hardship…

New loan application, current applications…

Most lenders are quickly updating credit policies to accommodate risk associated with COVID19 and request additional information and explanation around job type/industry to identify is this may impact ability to repay in the near future. Some lenders are asking applicants to provide disclosures and confirmstaions along the following lines:

The COVID-19 crisis is causing significant social and economic disruption. Applicant(s) to advise how they foresee this affecting their current financial position (including income) and how they will financially navigate that affect. This approval is subject to the Lender understanding and acceptance of this affect.

To Summarise:

  • Be proactive with your communication, ask for assistance before you miss a repayment;
  • Understand the impact and accessibility to any payment made during a repayment holiday;
  • If there was no loan conduct issues prior to COVID19, any hardship or repayment holidays granted as a result of COVID19 impacts will not effect your credit history;

Impact on Credit History

Borrowers who are granted a six-month deferral on loan repayments will not have their credit rating affected as a result of the holiday, so long as they were up to date with repayments prior to the economic impact of COVID-19.

“If a customer is granted a deferral on their mortgage and other credit products because of COVID-19, banks will report customers as not having missed a repayment, provided they were all up to date when granted relief,” explained ABA CEO Anna Bligh.

As always should you have any questions we are here to help – while we may be working remotely during this time please call the office on 1300 706 540 and one of our team will be able to help you.

Take care out there!

James Hardiman I General Manager

AXTON Finance

Photo by Branimir Balogović on Unsplash

COVID19 – AXTON Support Page

Firstly our small team at AXTON Finance hope that you, your friends and your family are looking after yourselves during this time. Please listen to government advice on how you can play your part to keep yourself and others safe during this pandemic.

Australian banks and lenders pitch in

On Friday 20th March The Australian Banking Association (The ABA) announced a unified response to assist Australians during this crises.

Below is a summary of COVID19 links available from each lender in the Australian market place.

This page is being updated as more information comes to hand.

Key points to consider – our brief summary

– The term ‘repayment holiday’ SHOULD NOT be interpreted as interest being waived. It is only repayments (interest) being deferred. You still have to pay the capitalised interest added to the loan balance in the future.

– Qualification requirements are likely to apply (eg unemployment, significantly reduced hours, at risk industry etc)

– Our opinion is that the deferred repayment should be used where genuine hardship is being experienced or is expected. In the long term adding (capitalising) interest for six months or more can add a significant amount of interest to your total loan cost.

– Most lenders are offering up to six months relief in repayments. Some are offering up to three months with a checkin at that point for a further three months.

– Credit reporting agencies and lenders have already outlined that the hardship arrangements are typically not reported as defaults, and therefore do not impact a borrower’s credit score, with APRA also stating on Monday 23rd March 2020 that banks need not treat repayment holidays as arrears.

– The very cheap fixed options we are starting to see should be considered carefully. Often you cannot make extra repayment on a fixed rate, there is often no redraw and expensive break costs can also apply should you pay the loan out early.

– It may be economical to consider refinancing to a new lender to take advantage of cheaper rates, a new interest only term or one of the current cash back rebates available before you simply defer your repayments.

Speak to your AXTON broker if you would like a mortgage review (click here for a free review) or to discuss any of the points above.

Useful COVID19 Lender Links

ANZ

CBA

Westpac Bank

NAB

Macquarie Bank

Bank Of Melbourne (click link on main page to COVID Information)

Bank Of Queensland

Firstmac

Resimac

Pepper Money

Liberty

ME Bank

ING

BankWest

Suncorp

If in doubt or if you just want to chat about your situation please contact your mortgage broker to assist where possible.

Contact details are as follows:

Our office number (1300 706 540) is still actively being monitored as we run a full VOIP system and can be contacted as per normal.

Many thanks

Your team @ AXTON Finance

Photo by Branimir Balogović on Unsplash