Overcoming mortgage stress sometimes requires a helping hand
Award-winning mortgage broker Helen Avis shares valuable advice on overcoming mortgage stress, based on more than two decades experience in the industry.
Life can present unexpected challenges and financial difficulties are a common concern. So, what can a mortgage broker do for clients who say they’re struggling?
A mortgage broker helps borrowers connect with lenders and seeks out the best lender for the borrower’s financial situation.
First and foremost, it’s essential to foster open and empathetic communication with clients. When clients express their financial struggles, it’s a sign they trust us and see us as a valuable resource. Listening attentively to their concerns is the first step in offering support.
Brokers can often be the initial point of contact for clients grappling with financial difficulties. Clients typically approach brokers with concerns about rising repayments and the challenges they face in meeting them.
Validating their concerns helps build trust and creates a safe space for honest discussions. To provide the best guidance, it’s crucial to review their financial situation thoroughly and trust plays a big part in this. Gathering all relevant financial information, including income, expenses and outstanding debts allows us to identify the root causes of their struggles.
Cracking the code with lenders
Brokers often face the challenge of discerning their obligations and differentiating them from the lender’s responsibilities. Under the National Credit Code, lenders are required to consider hardship arrangements when borrowers apply and state their inability to meet credit contract obligations, however, this section of the Code is broad and open to interpretation.
While lenders must determine when a hardship notice has been given, brokers play a pivotal role in recognising signs of hardship and guiding clients on how to communicate effectively with their lender.
Brokers serve as the main point of contact for many borrowers, and their ability to recognise signs of hardship and advise clients on how to approach lenders is paramount.
They have strong relationships with multiple lenders and can use these connections to negotiate on behalf of the client.
Lenders have a wide array of instruments at their disposal; depending on the circumstances, there may be various mortgage options available to alleviate their financial burden. This could involve refinancing to secure a lower interest rate, consolidating debts, extending the loan term to reduce monthly payments, payment holidays, temporary interest reductions, extending loan terms and looking at hardship applications with the lender.
Overcoming financial hardship
With the mounting pressures on consumers and small businesses due to rising interest rates and the soaring cost of living, the need for hardship assistance has become increasingly prevalent. Some clients may be unable to reprice or switch lenders, leading to potential financial hardship scenarios.
The struggles faced by Australian borrowers have garnered significant attention. A recent study by Roy Morgan revealed over 1.5 million borrowers are at risk of mortgage stress, with nearly a quarter of homebuyers allocating half their income to mortgage payments.
This precarious situation has prompted two thirds of homebuyers to request that their credit providers monitor their financial well-being to prevent payment defaults.
Financial hardship, however, should not be confused with occasional lapses, short-term unforeseen expenses, or temporary payment timing issues. It typically arises when clients experience significant life events such as job loss, illness, income reduction, relationship breakdown, or business failure, making it challenging to meet financial commitments.
In challenging times, it is a mortgage broker’s responsibility to stand by their clients, offering not just financial solutions but also unwavering support.
Collaborating with a financial planner can be beneficial for clients facing financial challenges. They can create a realistic budget and financial plan tailored to their specific needs, helping clients regain control of their finances.
I firmly believe in empowering my clients with financial knowledge. Educating them about responsible financial practices and the importance of maintaining a good credit score can prevent future challenges.
Interest rates add to burden
In most cases, when the RBA hikes the official cash rate, banks and lenders are quick to follow suit raising the rates of variable rate home loan borrowers.
The 29 per cent of borrowers in mortgage stress, the highest since May 2008, reflects the repercussions of the Reserve Bank’s interest rate hikes throughout this year.
The number of households deemed “at risk” of mortgage stress has swelled by a staggering 642,000 this year. Michele Levine, CEO of Roy Morgan, warns that further interest rate hikes could exacerbate this crisis, possibly inching closer to the record high of 35.6 per cent observed in May 2008 during the Global Financial Crisis.
If you find yourself in this situation, be sure to reach out for professional assistance to prevent matters deteriorating unnecessarily or excessively.
This article was co-written by Sasha Bennett
