With the Australian Banking Association (ABA) reporting that half of the 900,000 loans deferred since the onset of the COVID-19 pandemic are imminently due for review at the end of September, and ASIC making it clear lenders are to take a highly personalised approach when determining each borrower’s next step, much discussion has been held around what that process may look like.
We recommend that if you are currently deferring your loan repayments, you get on the front foot, chatting with your trusted financial advisors (Mortgage Brokers/Bankers/Accountants & Financial Planners) surrounding the right approach for your personal circumstances. If you wait until the end of September, it could be too late to achieve the right outcome.
Come the end of September, the banks will be inundated with requests from their existing clients to amend their loan facilities in one of three ways.
- Continue Deferral Repayments – given significant effects of revenue.
- Amend loan repayments from Principle & Interest to Interest Only for an extended period (3–4 months) – Revenue has been compromised through COVID, but sufficient enough to commence amended reduced payments.
- Commence loan repayments as they were prior to COVID-19 – Revenue is sufficient enough to cover full repayments once again.
The banks will no doubt be looking to complete a pulse check on your personal financial situation to ensure the chosen method is in fact the correct approach, given your personal financial circumstances.
All banks will have their own credit policies and procedures surrounding what they will request to ensure the correct loan repayment method is adopted, but we would suggest having the following information on hand to support your position:
PAYG (Income Earner)
- 2 x most recent payslips for each applicant (detailing current and year to date income)
- A letter from your employer detailing your current pay rate and confirmation of your position
Self Employed (Income Earner)
- Your most recent BAS Statement FY21, compared to BAS Statement FY20 (Same Period)
- FY20 Draft Financials (P&L & Balance Sheet) and Interim P&L & Balance Sheet FY21
- A letter from your accountant detailing your trading position – pre & post-COVID-19
If you are thinking of extending or reducing your loan repayment by converting from P&I to Interest Only, you are notifying the bank that the current debt commitments are difficult to meet due to restricted trade or reduction in income levels. Therefore, you are effectively compromising your ability to borrow further funds while your existing payments are deferred or reduced due to a change of structure.
Hence, if you are looking to borrow further funds to take advantage of various property or business opportunities that may present themselves post-COVID-19, and you are just deferring or amending your loan repayments for extra comfort, we would strongly suggest selecting option 3 (above) and commence loan repayments as they were prior to COVID-19.
This will allow you to potentially borrow further post-COVID-19 – subject to standard banking terms and conditions.
We highly recommend being prepared and upfront with your bank to achieve the ultimate outcome to support your personal financial circumstances moving forward.
Please feel free to reach out to the BlueRock Finance Team if you require assistance determining the best options available.