I was having a good chat to my business partner Peter yesterday and one topic we centred on was how impulsive people can be. It has definitely been something we have seen a lot of in the recent 2 weeks as the government has moved swiftly (thankfully) to enact a lockdown, government support for kiwis and businesses and the world has been through a really transformative (more on that anon) time.
As I said above, it is great that the government has moved swiftly and quickly to enact the lockdown and hopefully things continue to track in the direction they have and we make our way through this quickly. Despite that, it will be very interesting to see what the consequences of these unprecedented moves are on the NZ and global economy. Unemployment, bankruptcies and erosion of wealth look certain for a lot of people around the world and who knows how far that may go.
The government had to act quickly and didn’t have the benefit to plan and think out the consequences. A lot of kiwi’s however have more time than they think, and Peter and I want to encourage you all to think before you act as there are unforeseen consequences to everything.
Peter posted a great blog and appeared on OPES partners daily property podcast on just that around the currently well marketed ‘Loan Holidays’. These are NOT holidays and rather a deferral of your loan payments for a future cost. These can cost you quite a few bob in the long run.
Banks are also happy to look at restructuring debt, providing interest only terms or other facilities to support businesses, investors and others throughout this time. It is a great thing for the banks to offer but our warning is to remember what you ask for you will get.
We have had a few clients between us recently who have engaged us on transactions for new purchases, refinancing or top ups (yes, the world is still turning!) only to find that when we speak to their banks they have asked for some form of relief on their lending!
In these situations, the conversation goes something like ‘Thanks for the application Ben, however, Borrower X has recently asked for some relief on their mortgages with us due to their income being affected by Covid-19. Because of that we can’t reconcile their desire for nor ability to service additional debt at this time. Thanks for getting in touch but we are going to have to decline this application’.
There is a lot of great things available to parties at the moment to relieve the pressure and impact of Covid 19 and a lot of it is going to be needed by a lot of people. We however caution on taking on something just because it is there and readily available – plan out your mid – long term strategy. Relief today might mean that you cannot take advantage of some strength later on.
Everyone – particularly investors - really needs to think about what your next move is or what you want your next move to be before you apply for the available relief. It does currently seem that by doing that you could hinder your ability to borrow further in the near future and therefore restructuring or having a different conversation with the bank could be a very important move. A little more work in the short run may be of massive benefit in the long run.
As always, good advice is paramount, and we encourage you to engage with your advisors (or us!) before going to your banks. You want to make sure that you are taking the best possible steps now for your long-term future!