It has been almost four months since New Zealand's banks hastily put together a hardship scheme to protect clients with mortgages from the effects of the entire country heading into lockdown. The goal: to stop a flurry of mortgagee fire sales that would have led to a sudden drop in property values. Based on recent sales figures, the measures have largely worked and the housing market has not only been resilient, it seems to be going up.
But we are approaching the end of these hardship arrangements, which were mostly put in place for a maximum of six months. So now is the time to be reassessing your financial situation.
The two big questions banks and brokers are being asked are, "What do I do if I am still in financial hardship at the end of six months?", and, "If I go back to my previous mortgage payments and then lose my job, can I go back onto a hardship scheme?".
For those who are still on a reduced income, the banks are all working on how to extend the Covid-hardship schemes and I find it hard to believe that they will leave in the lurch anyone who is truly up against it as a result of the pandemic. Even before Covid-19, all banks had an ability to grant hardship assistance so extending this in some form seems likely.
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If your income is secure, there are some compelling financial reasons to end your mortgage deferral early. If you added $5,000 to your mortgage over the term of your deferral, that could end up costing you an additional $8,000 in interest. This means the cost of your mortgage deferral isn’t $5,000, it’s $13,000. The sooner you go back to paying your mortgage, the better off you will be.
But redundancy fears loom large. A lot of people are nervous about the end of the Government's Wage Subsidy Scheme, which could lead to job losses as businesses reassess their costs.
For both questions, the same rules apply. Banks will always have an ability to assist a client who is facing hardship but there are some important things you will need to provide:
- Proof that your situation is brought about from a Covid-related reason. This will most likely be the communication from your employer but will also include previous full-time payslips compared to the latest payslip.
- Evidence that your spending is as low as possible. That is to say that you are not being reckless with your money. Going to a mortgage hardship must be your last option.
It is completely reasonable to be concerned about the next few months and the banks are acutely aware of the toll that 2020 has taken on the mental health of the team of five million. If you can approach them with proof of your continued struggle, you should expect an understanding response.
For anyone who is confident that their income is going to continue in the future, now is the time to build up a buffer through the use of Revolving Credit or Offset accounts. Interest rates have never been lower meaning building a buffer is achievable for more people than ever.
- Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.
