Anecdotally all of the banks have been inundated with telephone calls from clients seeking guidance on their loans. Many of these calls have not been answered because the banks simply do not have the resources at the moment.
We obviously work closely alongside the banks and other lenders. We’ve recently seen them having to rapidly deal with the need to segregate their workforce to achieve social distancing requirements (and to ensure that their staff are isolated from each other). The disaster recovery plans have consumed all of their attention over the past couple of weeks.
We’ve seen the banks announce a range of measures to support their customers:
1. Offer to freeze home or business loan repayments for up to six months
2. The government has offered to guarantee half of a business loan of up to $250K to provide working capital
Many of the government measures that have been rushed out (by necessity). As an example, the loan guarantee has not been passed into law as yet. This means that the banks do not know how the guarantee will work, once it is available.
Also, the banks are developing their own approach as to how to deal with requests from their clients for repayment holidays. Some are automatically granting the request, others are assessing the requests individually.
We are progressively getting information from the banks as to how they are assessing requests to defer payments. We are also seeking information from each of the banks as to what happens at the end of the deferment period. In all cases, the interest is capitalised (added) to the loan. This means that the loan balance will increase during the six-month repayment holiday. There are two potential approaches to the missed repayments:
1. Agree on a specific time period that the repayments need to be caught up. This could create future cash flow strain.
2. Revert the repayments to the previously agreed repayment amount and extend the term of the loan by six-months.
We are also progressively getting updates from the banks as to whether they are passing on the RBA emergency rate cut from last week. Some have cut the variable rate, some have not. The banks that have not passed a variable rate reduction have reduced their fixed rates. Whilst a reduction in the fixed rates is attractive, the majority of home loans are on variable rates. We would prefer to see a reduction in variable rates to provide benefit to the majority. In addition, fixed rates are not suitable for every borrower because you can lose flexibility.
It is a rapidly changing environment and accurate and timely information is crucial. We are collating all of the information that we receive, and we are happy to have an unbiased conversation (by phone or other electronic means) to discuss options.