Heather Roy: Mortgage Relief Options, facts you may need to know.

This week the Australian Government announced that it had brokered a new deal with Australia's four largest banks to provide 'mortgage holidays' to borrowers who face financial hardship after losing their job.

Under the deal, eligible borrowers of mortgages could apply to their bank to have their repayments postponed by up to 12 months.  Such arrangements would be made at the bank's discretion and could extend to car loans where appropriate.  Banks could also consider other options - such as requiring interest-only repayments.

Following the announcement, media asked Prime Minister John Key whether banks in New Zealand could also come under pressure to offer such a deal.  Yet to see the full details of the Australian scheme, Mr Key said he would look into it.

He went on to point out that the New Zealand Government had offered the same level of support to the Australian banks as the Australian Government has provided and that their New Zealand subsidiaries might take into consideration what is required.

While banks have made assurances that mortgagee sales are a last resort, the economic downturn has already led to a rise in forced sales here in New Zealand - 150 in January alone, five times more than in January 2007.

With projections that a further 50,000 people could become jobless within the next 18 months - many of whom are homeowners - some banks are already offering 'mortgage holidays' and other monetary relief to borrowers.

As well as the options being considered by banks, New Zealanders should also be aware that relief, similar to the Australian proposal, is already available under the Credit Contract and Consumer Finance Act 2003 (CCCFA).

The CCCFA is a revision of the former Credit Contracts Act 1981 and Hire Purchase Act 1971 which was designed to re-focus credit law to provide greater flexibility for both borrowers and lenders.  It also brings the legislation into line  with laws and regulations overseas - especially those in Australia.

Among other provisions, the Act introduced a safety net by granting all consumers the right to vary consumer credit contracts where they struggle to meet their obligations as a result of unforeseen hardship.

This means that borrowers who unexpectedly find themselves in financial difficulty can apply to their lender to alter the terms of their contracts.  This can include: extending the contract term and reducing the amount of each payment due under the contract, postponing the dates on which payments are due, or postponing payments.

This provision applies to all types of consumer credit contracts and to all lenders, including banks - some of which have already implemented specific programmes to assist their customers who find themselves in a position of over-indebtedness.

Lenders and banks are also free to operate over and above the Act's minimum requirements - which are enforced by the Commerce Commission - and consumers need only be up-to-date with their repayments in order to apply for hardship provisions, with applications being made directly to the lender in the first instance of hardship occurring.

Should a lender refuse to alter a contract, however, the consumer may then apply to the Disputes Tribunal or Court for a decision.  The consequences of breaching the Act can be significant both financially, and in terms of damage, to a lender's reputation.  Lenders that repeatedly breach the Act can be prohibited from providing credit.

The fact is that the current economic situation is not going to be resolved quickly.  The country can expect to see increasing job losses and borrowers finding it difficult - if not impossible - to keep up with debt repayments.  This being the case, all New Zealanders should be aware of the options available to them - both under existing legislation, and those regulations that may come into effect in the future.

Heather Roy, M.P. ACT Deputy Leader