Circumstances change, but no evidence of financial hardship

Max, his wife Marie, and Max’s father Colin decided to buy a property together. Colin contributed money from the sale of his previous house, and Max and Marie contributed their KiwiSaver first home buyers’ allowances. Max, Marie, and Colin applied to a lender for a loan of about $500,000 to complete the purchase.

The lender carefully checked with each of their employers that Max, Marie, and Colin were in stable employment, with combined monthly income of $9,000. The loan repayments would be $4,000 a month. The only other debt the family had was a $30,000 loan owed by Colin to a finance company that he was repaying at $1,000 a month. The lender was satisfied from Max, Marie, and Colin’s bank statements that they could easily afford the loan and meet their living expenses.

Shortly after drawing down the loan, Colin lost some hours at work. Marie had some unexpected medical costs and the family missed one loan payment. Max contacted the lender who agreed to restructure the loan to catch up the missed payment. The family paid only four of the next eight loan payments and the lender contacted them to ask what was going on.

Max said they could not afford the payments and asked for hardship relief. The hardship application showed combined monthly income of $8,700 and expenses of $3,100. The lender said that they should be able to afford to repay the loan but agreed to reduce the payments to $2,000 a month for six months.

When the six months ended, the $4,000 per month loan payments continued to be dishonoured and the family again submitted a hardship application. However, the hardship application showed they should be able to afford the payments. The lender was not prepared to reduce the payments again and started mortgagee sale action.

At about the same time, New Zealand went into Covid-19 lockdown and the lender put the mortgagee sale action on hold. In late May 2020, the lender reissued a PLA notice. Max made another hardship application. Again, the family appeared to be able to afford the payments, the application was declined, and Max complained to FSCL.



Max said the lender had unreasonably declined the hardship application and was demanding the family pay amounts they could not afford.

The lender said they could not understand why the family had stopped repaying the loan. The lender considered they had been reasonable in initially giving the family the benefit of the doubt but could not permanently reduce the payments from $4,000 a month to $2,000 a month without evidence of hardship.



We reviewed the events giving rise to the complaint and agreed that the lender’s response to the hardship requests were reasonable. We were also satisfied that the original decision to lend was responsible.

Max was not able to explain why there was not enough money available to repay the loan. Max said Colin was working reduced hours and Marie had been sick, but this was not supported by the bank statements. We asked Max for bank statements and supporting information to help us understand what had gone wrong and why, but the information was not forthcoming.

Max, Marie, and Colin had borrowed money and agreed to repay it at $4,000 a month. We could not ask the lender to reduce the payments to $2,000 a month simply because the family said this would be more affordable for them.



We gave the family and the lender our preliminary view that the lender had acted appropriately and was entitled to take recovery action which could include the sale of Max, Marie, and Colin’s house if they did not repay the (by now) considerable arrears.

Max agreed that the only way forward was to sell the property. Max had four weeks to respond to the preliminary decision and said he would try to sell the property himself during this time. Unfortunately, Max did not take any steps towards selling the property.

As there did not appear to be anything more we could do to help, we discontinued our investigation.


Insights for consumers

Although hardship relief is available if your circumstances change, a lender is only obliged to restructure your loan if there is evidence that the change is causing you significant financial hardship.