The impact of COVID-19 has seen unprecedented changes made to the way we live our lives, and for many people the way we earn an income.
With social distancing measures grinding industries to a halt, the financial fallout is going to be significant. Despite the fact that the Australian Government has rolled out a number of stimulus measures aimed to help those directly affected by COVID-19, the uncertainty of how long this will continue and the uniqueness of this situation, are only adding to negative sentiment.
It is important to remember that this is a financial slowdown that is different from other financial crises in the past. This is not a demand-driven crash – so when the social distancing measures are removed, businesses will be able to go back to work and theoretically, the economy will be able to continue from where it left off. That said, I don’t think anyone expects that to happen immediately.
The RBA has done everything in their power to try and stimulate the economy in the short-term after launching a QE program and cutting the cash rate to 0.25 per cent.
So in terms of monetary policy, there is plenty for property investors to like. With mortgage rates in the low 2s, it could be argued that we’ve never had a better time to buy Australian real estate.
On the flip side, investors and landlords are also dealing with the fact that their tenants might not be able to pay their bills, let alone their rent. At the same time, the Government has also put a freeze on evictions for six months. Meaning that your tenants can’t be thrown out, even if they don’t pay the rent.
Despite the concerns, the property market still pushed higher in March and so far the expectations aren’t falling prices.
According to the latest data from CoreLogic, house prices across the country rose by 0.7 per cent in March, but it was noted that in the latter half that growth slowed.
Head of Research at CoreLogic, Tim Lawless made the point that Australian property is coming from a very strong base. He expects to see transactional volumes fall, but not so much property prices.
There are a number of measures in place for property owners and investors if you run into financial issues because of COVID-19.
The main one of interest to most investors will be the ability to take a mortgage holiday.
A mortgage holiday is effectively pausing your mortgage payments for a few months. The exact length of time and terms is different across all lenders and if you need to access this option, it’s important that you speak with your lender or mortgage broker.
However, there are a number of things you’ll need to factor in before going down that path.
The first is the fact that you will still be paying interest. It is simply being delayed (or capitalised). This means that you’ll likely be making slightly higher payments going forward, but this can help get you through if you’ve lost a significant portion of your income.
The next thing to consider is whether or not a mortgage holiday will impact your credit score?
Your credit score is effectively a report card on how well you have paid off debt in the past. Lenders use it to assess your suitability for a loan. If you’ve ever defaulted or run into trouble paying off debts, this will be reflected in a poor credit score.
When investing in property, it’s vital that you have a good credit score and access to lending. So this needs to be protected at all cost.
The Australian Prudential Regulation Authority (APRA) said mortgage holidays would not count
as “mortgage in arrears” – which means falling behind on debt repayments. So at this point in time, that suggests your credit score won’t be impacted in the long-term.
They understand that this is a very unusual situation and not one that is a reflection of anything that is in most people’s control.
However, it is important to note that you need to make these arrangements with your lender. If you miss a payment, that will be a black mark against you. A mortgage holiday is not automatically applied to your loan, so again contact your lender or mortgage broker as quickly as you can.
The final point worth noting is that as an investor, you really need to be making the most of the current lending conditions and low-interest rates.
The best way to save money is to find yourself a lower interest rate. Refinancing your current loans is a quick and easy solution and one I encourage everyone to be doing at the moment.
If you’re still in a position to access credit then this could be a really great time ahead. With rates lows, we will likely see capital flow into the likes of real estate when the dust finally starts to settle.
Because despite was is happening in the world, people still need a place to live.