Culinary star one minute, struggling to put food on table the next

Nearly 3 million Australians are seeking financial assistance from landlords or banks as the fallout from the coronavirus crisis continues to be felt.

Josh Warner* is an up and coming young chef carving a name for himself on the national food scene. He recently moved across the country to take up a position with a prominent Melbourne restaurant.

Before he left, he organised for his newly purchased home in Perth to be rented out. He then got himself settled in a rental in Collingwood.

He could not have foreseen what was to come. When the pandemic closed restaurants indefinitely, Josh lost his job around the same time his tenant in Perth suffered the same fate. From working in his dream job and saving for a possible investment property, Josh has found himself without an income, without a tenant, and with a rent obligation and with a mortgage. 

Josh is now among an estimated 2.9 million seeking a rent reduction or pause in their mortgage repayments.

Research by comparison website Finder revealed that 15 per cent of residents were seeking assistance with their primary accommodation expense. This included 1.2 million homeowners who have already contacted or plan on contacting their lender regarding a pause in their mortgage repayments. A further 1.7 million said they intended to negotiate cheaper rent with their landlord.

Similarly, a survey by financial comparison service Compare The Market found that one in four Australians with a mortgage, whose incomes are being impacted, were deferring home loan repayments.

The Commonwealth Bank has received more than a million calls and online requests for help and has seen an 800 per cent increase in calls to its financial assistance line. The vast majority (71 per cent) were for owner-occupied mortgages, with the remainder (29 per cent) being for investment loans.

Loan WA managing director Rob Diodato said that although the banks have indicated mortgage deferrals will not adversely affect credit ratings, there were reasons to avoid it if your personal financial circumstances meant it was a close decision whether or not to defer.

“At this point, I would suggest clients maintain payments into an offset account without actually committing to the actual payment, as a ‘just in case’ measure,” Mr Diodato told Australian Property Investor Magazine.

“Without knowing the client’s specific circumstance, it’s difficult to advise, but as always cash is king and if the employment is touch and go, I would personally like to have some money handy for essentials. 

“If, however, income circumstances improved, I would recommend making up any missed payments immediately to keep the loans on track.”

Mr Diodato said younger demographics in the service sector had been most affected by COVID-19 and a subsequent loss of income. He stressed the need for those under mortgage stress to investigate their options.

“COVID-19 aside, any client in financial hardship can approach their lenders and ask for temporary relief,” he said.

“Lenders are always willing to assist with genuine hardship cases and options could include deferring payments for a little while or converting to interest-only for a period of time. 

“Clients should have a hardship exit strategy ready, which could include getting back to work by a certain date or selling the home and repaying the debt by a predetermined date.”

While a mortgage holiday period can sound enticing in the short term, over time, the costs are significantly greater. The Finder research found that 10 years into a $500,000 loan with an average variable rate of 3.90 per cent, a six month repayment pause would cost an extra $11,127 over the remaining 20 years of the loan.

Not alone

Those considering, deferring mortgage or personal loan repayments, withdrawing from their superannuation, breaking a term deposit, drawing down on their savings or using a credit card less, are not alone. 

At ANZ, 105,000 customers have deferred their mortgage repayments, representing $36 billion worth of home loans and 14 per cent of the bank’s home loan portfolio.

At Westpac, payments have been deferred on 105,000 mortgages, up by 5,000 since the beginning of April.

NAB has approved more than 70,000 repayment pauses for home loans since 20 March with around $26.5 billion in loan balances.

Uncertainty still lingered around whether regulatory authority Australian Prudential Regulation Authority (APRA) and the banks would extend the six month mortgage amnesty. A failure to do so or, worse, a second wave of infections and lockdowns, could lead to a soaring number of homes being sold due to financial hardship.

APRA this week reported that between 20 April and 10 May nearly 1.2 million successful super withdrawal applications were made. The 1,188,000 superannuation withdrawals topped $9 billion in value, for an average payment of $7,546.

The withdrawals are capped at a $10,000 limit for financial years 2019-20 and 2020-21.