Lockdown impacts – July 2021
It was only in June where we were talking about rising interest rates & tougher borrowing measures in response to a rapidly moving property market & the economy’s healthy state. Now, we’re in a messy lockdown situation with the horizon looking potentially different. Will the property market slow down? What are bank lending policies likely to do in response? We explore this and more in this month’s Black & White Finance July 2021 update.
Property, how much will it slow?
The property market was on a roll. Data released by Domain showed that National house prices grew by 5.8 per cent in the June 2021 quarter. Sydney house prices rose 24 per cent and Melbourne by 16.2 per cent, over the year from June 2020 to June 2021.
Things are likely to slow now with these lockdowns, as we strive towards this 70 to 80 percent vaccination target. Westpac economists Bill Evans and Matthew Hassan have recently written, “Coronavirus disruptions are likely to take some heat out of markets in coming months. Price growth may stall altogether, particularly in Sydney where restrictions look set to last for some time yet. However, any slowing is very likely to be transitory, with easing restrictions and a national economic rebound driving a subsequent re-acceleration.”
Economists looking at the potential impacts of what could transpire this year, would take comfort from what happened last year. With low interest rates, the 4.9 percent unemployment rate & banks being able to support those in need with deferred repayments, it’s only the short term that looks like it could slow – optimistic thinking here of course and positive vibes. “We remain optimistic that as restrictions are eased, activity will rebound as has been the case in previous lockdowns,” NAB economists have written.
Previous support measures put in place by the government to support worker’s income, along with Jobkeeper and Cashflow boost, are similarly being rolled out now. The government has also just announced an improvement to their recent support measures which received a lot of backlash for being lacklustre. There are many affected in certain industries requiring more support though, as the government provided last year but any ideas of similar Jobkeeper or Cashflow boost initiatives being brought back, have been quashed for the minute.
Our lenders, the support available for existing customers?
At Black & White Finance, we have and always will continue supporting those affected by Covid-19. Each and every lender has support available for their customers on their home pages, and you can always pick up the phone to chat with us if going direct is too daunting or tricky.
If you’re impacted at present, you can defer your small business loan for 3 months, have your deposit fees & merchant terminal fees waived for the same period. You can also defer your mortgage on a month-to-month basis. It’s important to note, it could be that your statements show arrears once you take this support, so next time you apply for a loan you won’t be eligible given this historical arrear evidences an inability to meet repayments with inadequate cash reserves. For example, at CBA, customers may see their loan go into arrears during the deferral period, even though they will capitalise the arrears amount each month. So on your statement, it could show up as arrears and be detrimental to your next loan application.
The lenders, to tighten policy for new customers in the short term?
While the lenders are offering support to those existing customers, one main focus point in the industry at the minute is what the banks could start to do in unison as a temporary coronavirus measure – will they tighten their belts? Will there be blanket scrutiny of any loss or reduction in an applicants’ income?
Last year we saw some of the lenders restrict lending in ways whereby they needed even more information to make sure of the financial impacts from Covid to borrowers. Some lenders cut back lending altogether for certain industries or reduced the amount of commission or bonus income they would accept. Some required additional financial reports, like quarterly Business Activity Statements from accountants for the full year to understand the financial impacts to those that are self employed. Some still do maintain these policies.
On Monday 2 August, CBA will only use the customer’s most recent payment cycle to verify their income as at the date the application is submitted. CBA really want to make sure that as of the most recent day, the new borrower’s income hasn’t been impacted in any way as opposed to relying on a payslip which is 4-6 weeks old. CBA also made very clear that Government lockdown payments are not an acceptable form of income. ANZ on the other hand, will take Jobkeeper payments as a form of income. Some lenders need all those that are self-employed to provide 30-days business bank statements showing business income credits.
It’s important to know which lender will accept what type of income and position things in the right light from the get go. In terms of tackling the lending changes or additional information that may be required, your broker or lender, needs to be clear and succinct for you when presenting your potential covid impacts, so when a credit manager picks up one of our applications, there are no further questions asked, it should all be in black & white.
Final thoughts
Things are likely to slow, temporarily. The last rebound once businesses reopened after the lockdown period, did prove to be robust in 2020 and with the vaccination rates on the rise, it is hoped for that it will be much a case of the same. House prices are actually still expected to rise by a further 10 percent this year and next, according to S&P Global Ratings. NAB & Westpac economists recently said they expect Sydney to climb 21 or 22 percent in 2021.
The uncertainty fuelled by this Delta variant and the potential of prolonged Sydney lockdowns, adds lots of uncertainty to the forecasting. Will growth only stall for a month, two, or three, it’s not likely that any expert really knows in this vastly changing landscape we’re all living in. Lucky we have the Olympics to distract us at the minute. Go the Matilda’s, bring home the gold!
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