Australia well equipped to deal with economic fallout from coronavirus

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on April 09, 2020
Australia well equipped to deal with economic fallout from coronavirus

Photo by Shi Min Teh on Unsplash

Australia's central bank has painted a cautious but positive outlook for the country's financial system as it grapples with COVID-19.

The Reserve Bank of Australia (RBA) released its bi-annual 'Financial Stability Review' on Thursday, stating while the pandemic has crippled global economies, Australia is well placed to manage a looming recession. 

However, Australia's high level of household debt continues to be a longstanding risk to the financial system.

"Surveys indicate that about one in five households only have enough liquid assets to get from one pay period to the next," the RBA said.

"These liquidity constrained households are typically young, twice as likely to be renting and twice as vulnerable to unemployment compared with other households.

"Amongst households with mortgage debt, just under one-third of mortgages have less than one month of prepayments, and about half of these appear particularly vulnerable to a sharp decline in income.

"The most vulnerable include those working in jobs more exposed to unemployment risk, such as casual workers, and those in industries most affected by the COVID-19 containment measures, such as accommodation and food services. 

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But the RBA said the $200 billion stimulus package, combined with cooperation from lenders, would see many households through the crisis who would have struggled otherwise.

"Repayment deferrals (‘holidays’) being offered by the banks and the Government's recently announced wage subsidy should both help avoid large increases in arrears," it said.

"More generally, tightened lending standards over the past five years or so have improved the quality of outstanding household debt while Government income support policies and access to superannuation balances for the worst-affected households will cushion falls in household income."

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate* Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES
FixedMore details
  • Easy, digital application process
  • Market leading app to help you pay off your loan sooner
  • No on-going fees
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of January 22, 2022. View disclaimer.

The bank also had an optimistic outlook for Australian businesses, stating that most had low levels of gearing and significant liquid assets which would help them weather the storm. 

"Government and bank support will assist those businesses with sharp reductions in revenue, particularly those for whom income has completely dried up and small businesses with few assets that would otherwise be in a perilous position," it said. 

"Commercial property prices have risen faster than rents in recent years given the decline in risk-free interest rates.

"Owners who are more highly leveraged could struggle if tenants are unable to pay rent, particularly in retail property given the very weak retail sector."

With auctions and open houses banned, the RBA echoed the sentiments of many and said there would be very little turnover in the housing market. 

However, it would not comment on the effect of the pandemic on house prices.

"The turnaround in housing markets in the second half of last year reduced the risk that falling housing prices would result in widespread negative equity and larger potential losses for lenders.

"Most households now have substantial equity in their homes. It remains unclear how this will affect residential property prices." 

The central bank concluded the Australian financial system entered the crisis in a strong position and urged major players to be ready to support the population throughout and after the dust settles. 

"It is important that financial institutions remain strong so that they are able to support households and businesses during this difficult period and during the recovery once the health crisis has passed."


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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