'S***, we can't afford this': Homeowners fear they'll lose everything

A couple struggling to meet higher mortgage repayments had a “light-bulb moment” when they were told they could extend their loan term and save their family home.

They are just one of several stressed homeowners who have mistakenly come to the conclusion that the only way out of their financial squeeze is to sell their home. But mortgage brokers say they may have other options and should get sound advice before taking drastic action.

EasyStreet Mortgages mortgage adviser Gareth Veale said it was almost like there was some “make-believe mortgage stress” going on for some of his clients, whose misunderstanding about mortgage payments and repayment terms was making them feel like they had to sell and downsize when they didn’t have to.

A lot of it came from a lack of advice from the bank which caused them to jump to the worst-case scenario of selling their house, he said.

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Three sets of clients had come to him in the last few weeks saying they would have to sell up because they could see no other way out.

One Christchurch couple in their mid-50s had signed with a bank for a 15-year loan term. This had been manageable when interest rates were set at 2%, but once they rose to almost 7% it was too much and they couldn’t meet repayments.

Veale said after speaking to the bank the couple thought their only option was to sell.

“Their bank was clear they needed to pay [the mortgage] off in 15 years and for them it was ‘S***, we can’t afford this anymore. We are going to have to sell and whatever we buy is going to be less than what we need right now'.”

EasyStreet mortgage adviser Gareth Veale has had several clients who thought they had to sell their houses when in fact they didn’t need to. Photo / Supplied

Veale said he found them another bank and another solution

On paper it meant they would not pay off the house until they were 85 years old, but the reality was they would have downsized, paid it off as interest rates dropped or possibly inherited some money, he said.

“There’s a road map to be able to pay it off," Veale told OneRoof.

“It was like a light-bulb moment for them when I said why don’t you restructure it for over 30 years for now and as things improve start to increase payments rather than create all this stress for you right now and force yourself into selling an asset that you are not ready to sell just yet.”

Another client, a business-owner, was paying interest rates of up to 14% for vehicle finance for their company cars. That was impacting cashflow and their ability to repay the mortgage. Veale said they restructured the business debt and all of a sudden they had cashflow again.

“But until they had that advice they thought, ‘We have to sell the house and downsize or equally we can’t buy another house or do anything because we can’t afford it’.”

Veale urged homeowners to get sound advice. “Don’t just trust your bank. Seek better advice from advisers – accountants, financial advisers and mortgage advisers.”

He said stretching yourself now was not always a bad thing because over time the mortgage reduced and at the same time your income should increase. “If people have better advice about what they can do and what they can afford, they will be in a better position to buy as well. Structuring debt is really important, especially if you are a business owner.”

Tella Home Loans chief executive Andrew Chambers agreed it was important people got good advice. He said the big difference between a bank and an adviser was the bank looked at just one product while the adviser had a “balcony view” across all banks and all scenarios.

“It’s so dependent on who you are dealing with – it doesn’t matter if it’s a bank or an adviser, it’s who.”

Chambers said a good broker or even a good banker could help the borrower iron out those issues, but equally they could get a bad mortgage broker or bad banker and get the same bad advice.

He had not come across too many people who currently felt they had to sell because of financial pressure, adding that instead things seemed to be looking a bit better for a lot of people.

“It’s not that it hasn’t been happening, but it’s not something we are seeing a widespread scenario of,” he said.

“Most people have got through the grief of the high interest rates.”

Even when interest rates were at their lowest, the banks were stress testing them at 2% higher and interest rates had almost hit that level again.

“We are getting pretty close to by the time all the buffers are put in your average borrower is kind of comfortable.”

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