Forget about “sorry” being the hardest word to say. It’s actually “help” that borrowers have trouble with.
Research conducted earlier this year found three in 10 Australians said they would never approach their lender for help when going through financial hardship, with around 40 per cent saying they would sell their belongings or get a second job rather than admit they were struggling to meet repayments.
The main reasons given were fears hardship arrangements could cost more in the long run, may negatively impact their credit scores (they don’t), or wouldn’t make much difference.
Worse still, more than half of people surveyed didn’t even know they could apply for special hardship terms, from temporary repayment reductions to loan restructures.
The findings shocked lending regulator the Australian Securities and Investments Commission (ASIC) – which conducted the research – prompting it to launch an awareness campaign in June urging borrowers to both ask for more and expect more from their lenders.
The Just Ask!* campaign aims to educate consumers and puts lenders on notice as higher interest rates and cost-of-living pressures tip more Aussies into mortgage stress.
According to Roy Morgan research, around 1.66 million households – about 29.5 per cent of mortgage holders around the country – were at risk of mortgage stress as of September. That’s a rise of about 850,000 households since the RBA first began hiking rates in May 2022.
In response to this growing cohort of homeowners on the edge, ASIC has taken a keen interest in how lenders treat borrowers who run into financial difficulty. The recent awareness campaign comes hot on the heels of the May report Hardship, hard to get help: Lenders fall short in financial hardship support** – that, as the name suggests, rapped some home lenders on the knuckles for making the hardship process overly complex.
So, for homeowners struggling with mortgage payments, now is the right time to put your hand up for help. Not only are the lenders listening, the regulator is watching. Like a hawk.
ASIC has firmly thrown its weight behind consumers, with ASIC commissioner Alan Kirkland saying: “The message for Australians experiencing financial stress is that banks or lenders have a responsibility to support customers. If you are worried about being able to make your repayments, you’re entitled to ask your bank or lender for help.”
Before going to your lender, it is worth considering other ways to reduce your debt burden. There’s sound advice available at creditsmart.org.au, which aims to arm borrowers with knowledge. Many cases of financial hardship have their roots in poor consumer education, so it pays to upskill when it comes to money management. Some CreditSmart advice includes:
To help work out where your cash is going and identify where savings could be made, the Government’s MoneySmart website also has a free budget template***.
It’s better to seek help than miss payments.
Under Australian credit law, borrowers in financial hardship have a legal right to ask their lender to vary repayments, while the lender has an obligation to respond to this request within a specified timeframe and be reasonable in negotiating any new arrangements. Just be aware that lenders are required to assess your eligibility for hardship assistance, but depending on your circumstances it may not be in your long-term interest for them to grant it.
The first step is to contact your lender’s hardship team, if possible, via email so there is a record of communication. The sooner you get in touch, the better.
According to ASIC data, the top five reasons borrowers claim hardship are over-commitment, reduced income, medical, unemployment and separation.
Although some lenders are streamlining the process for first-time applicants, borrowers may be asked to provide documents to:
If a lender does not believe a borrower meets the criteria for hardship support and refuses to negotiate new or temporary terms, they must explain why.
A new Banking Code of Practice due to take effect early next year explicitly states for the first time that circumstances considered to contribute to financial hardship include illness or injury, loss of employment, pandemic or natural disaster.
Importantly, according to Moneysmart, entering a financial hardship arrangement with your lender will not affect your credit score. While your credit report will note you have an arrangement in place, this listing is deleted after 12 months.
If contacting a lender directly is too daunting, borrowers have the option to access a free, confidential and independent financial counsellor through the Government’s National Debt Helpline****. Financial counsellors can act as intermediaries to negotiate hardship agreements with lenders. Beyond this, they can also review your finances and help plan a budget to help get you back on track.
It’s also useful to know it’s not just lenders that offer help to Aussies who find themselves in a fix. Most State and Territory Governments also offer energy or water grants to help cover utility bills when residents get caught out by a sudden change in circumstances. For example, WA’s warm and fuzzy sounding HUGS (Hardship Utility Grant Scheme) offers up to $1,060 to help pay utility bills, while Queensland’s Home Energy Emergency Assistance scheme can cover up to $720 of electricity or gas bills.
If you’re facing mortgage stress, remember that you don’t have to handle it alone. There are systems in place designed to help you, and now more than ever, it’s essential to take advantage of them. Asking for help isn’t a sign of failure – it’s a smart financial move that can keep you afloat during challenging times.
The information provided in this article is a selection of information taken from publicly available sources and is current as at the date specified in the information. This article has been written for general informational purposes only and is not intended to provide, and should not be relied on, for tax, legal or accounting advice. We encourage you to consult your own tax, legal and accounting advisors before engaging in any transaction.
*Just ask your lender for help - Moneysmart.gov.au
**24-104MR ASIC report: Australians need better hardship support from their lenders | ASIC
***Budget planner - Moneysmart.gov.au
****Find a Financial Counsellor - National Debt Helpline (ndh.org.au)