Update on COVID support for mortgage holders and business owners – 29th March 2020

Home loan relief | Small biz support | Rate cuts | Tax breaks | Superannuation

In this current environment banks and lenders are quickly making changes and adapting to the unique time we find ourselves in, so we have collated relevant and up to date information for both individuals and business owners – I hope you find the information relevant to you helpful.

Helpful information

• With the vast array of information available the Australian Government Health Department website provides the latest and most accurate information.
• The Australian Government has released this helpful Fact Sheet about the assistance available to support businesses to manage cash flow challenges and help retain their employees.
• Additionally they have released their stimulus packages.
• For more information and tips to help improve your safety and well being, visit the Federal Government’s official advice website
• Anyone impacted can call the ATO’s emergency support line: 1800 806 218.

Worried about your budget? You can pause your repayments

If you’re struggling with your home loan repayments help is available.

Banks and lenders across Australia have announced a range of relief measures for mortgage borrowers, including the deferral of repayments for up to six months.

It’s important to note that while your repayments are on hold, interest may still accrue, which means your repayments will increase once the pause period ends. Although not confirmed at this point, it appears that going into arrears through this time will not impact your credit score in the future.

Lenders are also offering relief to business customers, with measures such as:

• Repayment holidays for loans and credit cards
• Rate cuts
• Overdraft increases
• Extra funds set aside for unsecured borrowing
• Restructure and consolidation of existing loans
• Early access to term deposits

All lenders have hardship teams ready to help customers in tough times.

Interest rates have been tumbling – what’s the impact?

The Reserve Bank of Australia has slashed official interest rates to record-low level at an emergency meeting last week. This was the second rate cut in March, seeing the cash rate drop 50 basis points in less than a month.

In response to the drops, while many lenders failed to pass on the entire 50-point saving almost all made significant reductions – that have been passed onto their clients – and we are keeping an eye on these for you as well.

Additionally borrowers with a lot of equity in their homes are potentially well – placed to take advantage of these big rate cuts and release equity. However other borrowers, might struggle to find savings, because valuers are being very conservative about property values.

Switching your loan repayments to interest-only is another option

If your income has taken a hit due to the Coronavirus crisis, you might be thinking of switching your home loan to interest-only. This would have pros and cons.

The main benefit of switching from principal-and-interest to interest-only repayments is that your repayments would be lower during the interest-only period.

However, switching to interest-only would also have drawbacks:

• You wouldn’t reduce your outstanding debt during the interest-only period
• You would pay more in interest over the life of the loan (although this might deliver tax benefits if you were an investor)
• You might not be prepared to revert to higher repayments once the interest-only period ended
• A switch to Interest Only is not as simple as a phone chat and will usually require a mini-assessment of your circumstances

Big banks support $20bn business loan guarantee

The Treasury announced on Sunday night, Australia’s biggest banks have thrown their support behind a new federal government plan to support the nation’s small and medium-sized businesses.

The government will guarantee 50% of new loans issued by eligible lenders to SMEs, with a pledge of $20 billion to support $40 billion in loans.

Three of the big four banks immediately announced concrete support for the government plan, with measures including:

• Extra funds made available for business loans
• Big rate cuts for unsecured business loans
• Bank staff proactively contacting businesses to offer support

The authorities have now unveiled stimulus packages, designed to help businesses stay afloat and keep Australians in work.

ATO offers tax relief for people, businesses

The Australian Taxation Office has promised relief measures to help those affected by COVID-19.

The ATO will “work with individuals experiencing financial hardship” and will “apply appropriate tax relief measures for serious and exceptional circumstances, such as where people cannot pay for food or accommodation”.

The tax office also offered support to coronavirus-affected businesses, with measures including:

• Tailored support plans
• Deferral of tax payments by up to six months
• Faster access to GST refunds
• Low-interest repayment plans for businesses with tax liabilities

Anyone impacted by COVID-19 can call the ATO’s emergency support infoline on 1800 806 218.

You can now get early access to your super

Individuals suffering from COVID-induced financial stress will be able to get early access to 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 in the three months after 1 July 2020

These early withdrawals will be tax-free.

Eligible Australians include those who are unemployed 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 usually be as an absolute last resort. First, 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.

Anthony Landahl | Equilibria Finance

This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.