In the last week alone (1st April 2020), we have seen an escalation in Government restrictions to reduce the spread of COVID-19. However, this is, unfortunately, leading to a sharp and sudden impact on a wide range of industries, resulting in substantial job loss and uncertainty.
With media outlets quick to highlight the growing lines at Centrelink, investors are starting to take note of concerns around what it means for them as a landlord as well as a mortgage holder.
In this article, we will take a look at the options available to investors as we attempt to navigate through unchartered waters.
Q: Can I “pause” my home loan?
The short answer is yes.
At present (1st April 2020), the big 4 banks have indicated they are willing to defer mortgage payments from 3 to 6 months for those whose employment or earning potential has been directly impacted by COVID-19.
At the same time, home loan comparison site Rate City has also indicated that some of the smaller lending institutions have also followed suit and agreed to offer what is fast becoming known as a “mortgage holiday” [1].
While the banks are willing to defer payments, interest charges will be capitalised, meaning they will be added to the outstanding balance owing.
Should you consider this option, it's recommended that you consult with an appropriately qualified professional to understand the financial implications of entering such arrangements.
Q: What rental relief is available?
Following the national cabinet meeting on 28th March 2020, Australia's Prime Minister Scott Morrison issued a statement announcing:
“State and territories will be moving to put a moratorium on evictions of persons as a result of financial distress if they are unable to meet their commitments. There’ll be a moratorium on evictions for the next six months under those rental arrangements.”
Q: What should landlords do in times like these?
Fortunately, many investors will be able to lodge a claim with their landlord’s insurance to cover some of their losses, however, the way landlord deal with the situation may affect if they can claim insurance.
At the same time, as a landlord, if you want to enter an arrangement whereby you discount the rent or otherwise to support a tenant through this difficult time, that is your prerogative.
When considering entering this arrangement, it's important to speak with your insurance to provide to understand if any such agreement may impact your policy or ability to claim should the need arise down the track.
For those that don't presently hold any form of landlord insurance, it's highly recommended that you speak with a broker to determine if a new policy can be taken out before a claim arises.
Q: What if I do not hold landlord insurance and my tenant requests rental assistance and expresses financial hardship?
Until details of the tenant and landlord relief packages are made available, we strongly suggest that landlords put a payment plan in place with any tenants who are genuinely suffering financial difficulties as a result of the COVID-19 pandemic.
It's recommended that you speak with your property manager who may be able to offer assistance in providing viable solutions and also documenting the agreement.
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Bradley Wearne - General Manager & Head of Research at Meridian Australia
P: (02) 9939 3249
References
[1] Rate City