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Financial hardship

Jenny and Paul were experiencing financial difficulty, so they asked a financial adviser to help them refinance their existing lending. At around the same time they moved into Paul’s parents’ home and rented out their home to save money.

The financial adviser was successful in arranging a loan of $637,000 for a six-month interest only term secured against what was now Jenny and Paul’s rental property, valued at $980,000. The interest payments of $5,610.29 per month were added to the loan balance.

A fortnight before the end of the six-month term the lender emailed Jenny asking whether they would be repaying the loan on the expiry date or whether they wanted to roll over the loan for another six-month period. However, this time, the interest could not be added to the loan balance and they would need to pay the monthly interest only payments of $6,407.

Jenny replied that they could not afford the interest only payments, so the lender offered a slightly lower interest rate, reducing the payments to $5,875.42. Jenny and Paul were still unable to afford these payments, and the loan fell into arrears.

In April 2022 the lender started the mortgagee sale process but was unable to serve the Property Law Act (PLA) notice on either Jenny or Paul. In May 2022 the lender issued a second PLA notice, and successfully served it on Jenny, but was unable to locate Paul. The loan arrears were now about $33,000.

After receiving the PLA notice, Jenny contacted the lender asking for hardship relief. The lender declined the application because Jenny and Paul did not give them any supporting information. The arrears were now nearly $54,000.

The lender suggested the best option for Jenny and Paul would be to sell the property. The lender agreed to suspend their loan repayments until the end of September 2022.

In August 2022 Jenny submitted another hardship application with details of their financial situation. Jenny offered to withdraw her KiwiSaver funds, about $50,000, to pay towards the arrears if the lender would give them time to sell the property.

The lender again declined the hardship application, saying that Jenny and Paul’s loan was $92,000 in arrears so withdrawing Jenny’s KiwiSaver on the grounds of financial hardship would not improve their situation. The lender again offered to suspend loan payments, from 28 September until 28 January, provided Jenny and Paul were actively marketing the property for sale. The lender also referred Jenny to both FSCL and a financial mentoring service.

Jenny was not satisfied with the lender’s response and complained to FSCL.


Jenny complained that the lender had declined their hardship application despite her offering to pay her KiwiSaver funds to clear the arrears. Jenny said if the arrears were repaid, she and Paul would have been able to refinance with another lender.

Jenny also said that the lender should have known from the beginning that they could not afford the interest only payments and this was why the payments were added to the loan for the first six months.

The lender responded that, in their view, withdrawing Jenny’s retirement savings to repay the arrears was not in her best interests. The amount in her KiwiSaver account was not enough to repay all the arrears and, on the information available, Jenny and Paul did not appear to have sufficient income to make the interest only payments. From the lender’s perspective, the only option was for Jenny and Paul to sell the property.

The lender again offered to suspend the loan repayments for another two months if Jenny and Paul made themselves available for PLA notice service and showed that they were actively marketing the property but, if the property was not sold by 28 April, the lender would step in and sell the property.


We told Jenny and Paul that, in our view, the lender’s offer was reasonable, and they should accept it.

We explained that because the lending was secured by an investment property the lender did not owe Jenny and Paul the responsible lending obligations in the Credit Contracts and Consumer Finance Act 2003 (CCCFA).

It also appeared to us that Jenny and Paul had insufficient income to repay the loan, so it was not in their best interests to withdraw funds from the KiwiSaver account to pay the arrears. In addition, Jenny’s KiwiSaver balance was insufficient to pay all the arrears.

The lender’s offer to suspend payments while Jenny and Paul tried to sell the property was a reasonable response, but this offer could not be held open indefinitely. It was reasonable for the lender to give a deadline after which time they would take over and mortgagee sell the property.


Jenny and Paul accepted our view, and the complaint was resolved on this basis.

Insights for consumers and participants

The responsible lending, including hardship, provisions in the CCCFA only apply to consumer credit contracts and not to loans on investment properties. Where the security is an investment property, lenders are not obliged to check that the borrower can repay the loan or offer hardship relief. However, in this case the lender could see that Jenny and Paul were experiencing significant hardship and offered a practical way forward.

While selling what had once been a family home was not the outcome Jenny and Paul were looking for, we were able to help them understand this was an inevitable outcome and co-operating with the lender was ultimately in their best interests.