The Current Financial Position Explained – July 2020
Extended Mortgage Holidays
Finance Minister Grant Robertson has indicated that the extension of mortgage holidays would be “justified” for those that are still struggling with their mortgage payments as a result of COVID-19.
“During the Covid-19 lockdown in March, the Reserve Bank, government and retail banks agreed a support package to grant payment deferrals or shifts to interest-only for six months, to help hard-up households.
As the six-month period nears its end, politicians are keen to avoid a spate of home loan defaults and are reviewing further breaks for those who have lost their jobs.
Robertson told Stuff: “The advice that I’ve had from the Reserve Bank is that they are considering looking at the extension of the mortgage deferral schemes – of the support that they give to enable the banks to provide those schemes – and I think judging from the conversations I’ve had with trading banks, that would be justified.” [source]
As we have indicated in the past, you need to think very carefully about whether a mortgage holiday or interest-only loan is right for your circumstances. The repayment obligation does not disappear in these agreements, it simply gets delayed. So, if you are considering which path is right for you, we strongly encourage you to get in touch with us to discuss how each option could impact you financially.
A Negative OCR?
The Reserve Bank are set to review the Official Cash rate in August. Most economists believe that the OCR will be kept at 0.25% at this stage as there is no clear reason to lower it right now. However, that may not be the case in the future.
If we continue to see a negative economic impact due to COVID-19 fallout, then there is a greater possibility of a negative OCR. In fact, the Reserve Bank has already warned lenders that there is the possibility they need to prepare for a negative cash rate next year.
Brad Olsen of Informetrics believes negative rates are on the cards. “We expect the Reserve Bank will take the OCR negative by mid-2021 once retail banks are able to implement a lower rate,” Olsen said. “However, we expect to see the Reserve Bank make it clear publicly ahead of this move, what its preference is between a lower OCR and an expanded LSAP program, which will provide us with greater direction as to the likelihood of the move.” [source]
A negative OCR could mean that interest rates fall even further, so it is a case of watching and waiting to see what might happen.
Easing Of Servicing Tests?
Before any lender will approve a loan, they need to confirm that you are able to meet the repayments based on your individual financial position. This is done by conducting a servicing test, to confirm you can “service” the loan repayments.
ASB and ANZ have recently announced they have reduced the rate of their servicing tests to fall in line with the current climate. This takes into account the record low-interest rates we are experiencing right now.
It may allow some borrowers to borrow up to an extra 10% from ANZ. Brokers are hoping that both BNZ and Westpac also relax their servicing test rates to meet the current economic climate. [source]
With all these changes taking place in July, it is important that you seek advice from a financial expert like the team here at Mortgage Suite before taking any action.
We can help you to see what options are available to you regardless of whether you want to seek new lending, restructure, or top up your current loan, or simply to refix your current interest rates.
We are always here to help by phone, video conferencing or in person, so drop us a line today.