Coins

As the complexities around managing and exiting the coronavirus economic and social shut down increases, so to do the financial decisions many people are or will have to make in relation to their mortgages.

Given the rapid increase in unemployment, banks have offered a number of options to relieve financial stress, including pausing mortgage payments. Whether or not this is a good strategy depends on your current financial position and how quickly you think you will be able to get things back on track. But there has to be a cost to this – banks aren’t in a position to give you this break without covering their own costs. How much it will eventually cost you depends on each banks policy in relation to arrears in mortgage payments. Seeking advice before making a decision is important. There may be options around reducing payments rather than stopping them altogether.

The area of real challenge is people nearing retirement who still have mortgages. They don’t have many working years left to make up any additional debt. But how many people is this actually likely to affect?

According to a study conducted in 2019 by Emeritus Professor of the RMIT School of Global Studies and Social Sciences Gavin Wood, the number of homeowners approaching retirement and still paying down their mortgage has jumped from 14 per cent to 47 per cent in the last 26 years. Around 26 percent of this cohort, also have mortgages owing on investment properties. While having rental income to subsidise your income in retirement is a well-tested strategy, the question is how is it holding up in an environment where the government is putting a freeze on rents and evictions because of non-payment? There are a number of strategies you can put in place around renegotiating your loan, reducing payments or redrawing on any advance payments you have made. But getting advice based on your own situation is an important place to start.

And then there are those that may have given their tenants notice prior to the pandemic and now have an investment property that is sitting vacant. Do you try and find tenants and lock yourself into this six-month period of potential changes? Clearly tenants who are able to pay should in theory continue to pay, but what about if their situation changes? Where do you stand then? Is it a better strategy to take this time to do a bit of a refresh or update on the property in preparation for when the market returns to normal? If you choose to do the mini-makeover what are the best ways to finance this – is it through a loan redraw, your line of credit or maybe your cash reserves? Is extending the loan an option if you are an older mortgagee? It can be a bit confusing and the rules and government policy are likely to keep changing until there is a clear path to exiting the current situation.

According to Google one of the most commonly asked questions at the moment is what will the coronavirus pandemic do to house prices. Obviously, as a homeowner, you are concerned about the value of your asset - but there is the other side of this discussion. With the estimated number of defaults to be higher than those during the GFC, even with banks providing mortgage holidays – is it, in fact, a good time to buy an investment property? House prices prior to the current situation were stable in most markets, but there was talk of an oversupply in some categories that were already putting downward pressure on rental returns. But is it something that is currently worth investigating? You should seek advice because this decision can really only be made after a review of your entire investment portfolio.

If you’re looking for an adviser with the qualifications and training to support you to make decisions by looking at your entire financial position, contact ActonAdviceGroup today.