COVID-19 – An important message to our clients, partners and community

COVID-19: An important message to our clients, partners and community

In light of the civil emergency of COVID-19 declared by our Government with level 4 being effective from 23:59 Wednesday 25/03/2020 there are some important changes that will impact our staff, clients, partners and community.

Our interpretation of essential service extends to the work we do here at Twine (Banking Infrastructure). We endeavour to do our very best to support our clients at this time of uncertainty and have activated our contingency plan.

As of today, 24th March 2020:

  • All our staff will be working their normal hours from home.
  • During this time expect delays in response times, especially with Eugene Bartsaikin. Due to network congestions phone calls may be limited so we will be monitoring our emails extensively at this time.
  • Expect a minimum 10-working day turnaround for most banks and a few days for us to do our part.

  • We remain committed to working with you and support you during this time of uncertainty to achieve your goals and provide financial comfort to your families. Secondly, I want to extend a massive thank you to our team, Dylan Collings, Daniel Jespersen, Galina Golub & Irene Halim for continuing doing this great work to support our clients.

    I’ve been fielding many similar calls recently, so we’ve created an FAQ to summarize these important questions.

    Interest Rates

    Q. The floating rate had dropped following the OCR cut, however, I cannot see this online?
    A. Many banks will have this effective for existing loans as of 01/04/2020. The discounts you would have had approved on your floating rates will still be there and as the lower rate comes into force you would see the after-discount rate.

    Q. The OCR had dropped on 16/03/2019 by 0.75%. Does this mean the fixed rates will drop by the same amount, and if so, when would I be able to break my existing loan and refix with the new rate?
    A. After the OCR review it often takes up to 3 months or longer for the cost of funding for banks to change and therefore impact the fixed rates on offer. Banks source of funds are made up of a variety of wholesale funding and deposits maturing at different times. As these mature, they roll onto the newest market rate which has since dropped. This should lead to a further reduction in interest rates over the coming months. We’re not certain as to how quickly the lower rates will flow through because the NZD had devalued, however the RBNZ has announced Quantitative Easing to support the lower interest rates and flow of funds to the market.

    Some banks have followed through and made a small drop in their fixed rates. With the banks that haven’t dropped their rates officially we’re often able to match similar rates in most circumstances. On average we’re seeing 3.09% 12M, 3.39% 24M .Therefore, because the full benefit of the rate dropped hasn’t flowed through yet, we discourage any activity of breaking loans and re-fixing onto the lower rate.

    My advice to most clients is to wait until their next fixed loan tranche is up for renewal and discuss fixed rates as close as possible to the rollover date. We could look to review the cost/benefit of breaking and re-fixing loans once interest rates have adjusted to the new norm, likely after the lockdown.

    Q. We’re seeing that 5-year rates are now under 4%, this looks like a fantastic rate – should I fix at this rate?
    A. Please call/email me to discuss if this may be useful in your specific situation, however, for the benefit of the majority the answer is usually no.

    3-year special rates are currently quoted at 3.69%, 4-year rates at 3.79% and 5-year rates at 3.89%. To understand how to make the comparison please see below;

  • 3 years at 3.69% = 1 year at 3.09% + 2 years at 3.99% (in 1 years time)
  • 4 years at 3.79% = 1 year at 3.09% + 3 years at 4.02% (in 1 years time)
  • 5 years at 3.89% = 1 year at 3.09% + 4 years at 4.09% (in 1 years time)

  • This exercise can be repeated every year and our view is that if you can afford to repay the loan at a higher rate you would be better off to increase your repayments based on the higher rate now and fix at the cheaper shorter term rate.

    Given the circumstances, we would anticipate the current low rate environment to persist for several years to come. For rates to rise, we need to have a booming economy with unprecedented demand for the NZD – both of which are unlikely given the circumstances.

    Q. My renewal is coming up within the next 60 days. Should I lock in the low rates now?
    A. No. Given the circumstances, it’s best to wait until the final week before your loan rolls over.

    Q. Should I just float the loan instead if you’re expecting rates to continue dropping?
    A. Possibly. Let’s play out a scenario below assuming you have an average floating rate of 3.99% (after discount). Note, the floating rate varies substantially client to client and bank to bank.

    Floating for 1 month means you have paid a premium of 3.99% – 3.09% = 0.90% during that month. Annualized this is 0.90/12 = 0.075%, so a hypothetical 12 month rate should drop from 3.09% to 3.01% or lower for you to benefit. Floating for another month you would be gambling for the 12m rate to drop below 2.94%. This may possibly happen but isn’t possible to predict. The lower your floating rate the lower the opportunity cost for you to adopt this strategy.

    Mortgage Stress

    Q. I see the banks offering support to mortgage holders. Should I apply for interest only or a mortgage holiday?
    A. This is where the loan structure contingency plan hits the road. Banks will be announcing support packages imminently; these packages will likely include support to offer interest only for a short period of time or possibly a mortgage holiday. In times of stress we recommend utilizing other forms of contingency first.

  • Mortgage Repayment Reduction – Many of our clients are paying more than minimum of their loan payments. Contact your bank directly to reduce these payments if you are paying above minimum and need the relief.
  • Redraw Lines – Westpac and BNZ mortgage holders who have repaid more than minimum may be able to access their redraw facility. Note, you’ll need to break your loan to access this or wait until your fixed rate is up for renewal. This will help re-instate your cash funds when the times comes.
  • Contingency Funds – Instead of accessing redraw lines or applying for mortgage holidays consider using your contingency funds (if available) in the interim.
  • Interest-Only – If neither of the options above help, we recommend contacting your bank to set up your loans on interest-only for a short term (6 months). This will alleviate some of the principle payments, however once the I/O period expires your loan will have a slightly higher minimum payment as your balances wouldn’t have dropped, yet your loan term has shrunk.
  • Mortgage Holiday – This is a last resort and is essentially a form of arranged arrears. It will provide massive immediate relief, however your interest will still accrue and your repayments would have a substantial increase immediately after the ‘holiday’. If you need this, please apply directly with your respective bank.

  • Q. My hours are being cut, income being reduced, business revenue may be impacted. What other support is available?
    A. I suggest all employees to discuss with their employers how they will be remunerated over the coming 4 weeks. Employers & Business owners have support available in the form of a wage subsidy so as long as they pay at least 80% of their employees wages (as well as a few other criteria) they should be able to receive a subsidy. Therefore, our expectation is that most employers will be able to pay their staff during lock-down.
    Please check https://covid19.govt.nz/ for up to date information on government support during this time.

    Banking Infrastructure

    Q. Will I still be able to go into the bank for my appointment or apply for a loan?
    A. Under Level 4, Banks are an essential service and are expected to be operational. Appointments are likely to be cancelled, however, we’re expecting to hear from the banks very soon on how they will be opening accounts and on-boarding new customers.

    Timeframes are likely to worsen so we suggest getting organized sooner to allow us and banks more time to process. Expect a minimum 10-working day turnaround for most banks and a few days for us to do our part.

    Q. Will I still be able to see my lawyer/ order a valuation/ building inspection etc.?
    A. Check with your lawyer as not all will be equipped to work remotely. It’s also unlikely that other property services will be accessible during the lock-down so I suggest either contacting them directly to find out or to put on hold any property offers during this time.

    Whether you have a mortgage or not, it can help shed some insight as to how homeowners and investors will be managing at this time.

    Please share with your friends and family who may be stressed around how these next several weeks may play out for their finances.

    If you have more questions, please feel free to reach out as I can work on a follow-up post as highly likely others may have a similar question.

    We commit to keeping you regularly updated over the coming weeks and look forward to resuming more normal business operations with you in the future. Please stay safe and healthy until that time.

    Best regards,

    Eugene Bartsaikin
    Managing Director
    Twine Financial Advisers

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