Brokers hold key position in assisting borrowers in hardship

Speaking in a recent webinar – What to do when your client says they are in hardship – banking lawyer Elise Ivory, a partner at law firm Dentons, said brokers hold an important position due to being the “point of contact” for many borrowers with their lenders.

The webinar showcased how brokers can help their clients facing hardship amid the rising cost of living and provided insight into what lenders can and will do for those facing hardship.

Ms Ivory stated a hardship application to a lender could be made verbally or in writing and that it was “really important that brokers know what to tell the customer in terms of what the lender’s obligations are”.

She said: “A broker could tell their customer: ‘Call your lender and tell them that you are in hardship or tell them you cannot make repayments and they will be obliged to assist you’.

“Hardship is generally considered to be something that is medium to short term, a lender will often decline hardship if it is a longer-term problem for the customer and they’re not going to be able to get out of the problem that they’re in.

“So, it isn’t supposed to be something that is going to be ongoing for years and they will never overcome it; it is supposed to be temporary. Therefore lenders may decline a hardship on the basis that it’s not temporary and that [it’s] actually, unfortunately, better for the customer to sell the property now and move out now opposed to trying to get hardship and incur more fees.”

She outlined that events that could amount to hardship included job loss, injury, short-term illness, injury income reduction, parental leave, or even businesses going “belly up”.

However, the Dentons partner said lenders could now be quite creative in terms of how they may help a customer so it was important for brokers to ensure their clients explained their situation and what sort of hardship help they might need to “get out of” the hardship situation.

The lender could provide payment holidays, a reduction in interest for a period of time, extend the term of the loan to reduce repayments, or even provide a customer time to sell.

Enter hardship agreement before it is too late

Despite asking for hardship relief being a “very emotive” situation, both Ms Ivory and Michael Blyth, executive director of policy and advocacy at the Australian Retail Credit Association (ARCA), implored brokers to encourage their customers to enter into hardship arrangements before missing payments and falling into arrears.

Mr Blyth said: “It will be the best thing for their credit report if they can get the hardship arrangement upfront before having that history of missed payments. Get them to talk to their lender as soon as possible.”

Ms Ivory added: “It is very emotive and there’ll be customers who don’t want to admit that they’re having problems.

“The people on the other end of the hardship line with the lenders, this is what they do all day, they’re not judging anyone, they’re not making any assumptions, they’re just there saying how can we help?”

The focus on hardship and the importance of the brokers’ role in helping their clients receive hardship dispensation comes after an MFAA-run survey found known instances of clients seeking hardship assistance remained “extremely low”.

This is despite 93 per cent of brokers stating their clients were “more concerned about meeting repayments than they were six months ago.”

MFAA chief executive Anja Pannek declared: “We expect this concern about mortgage repayments to increase over the coming months with more than 1.2 million borrowers coming off very low fixed rate terms throughout 2023 and into 2024.”

Hardship requests likely to increase as those in arrears rise

The webinar comes as arrears levels tick up at the lenders.

Non-bank lenders Wisr, Resimac as well as non-major banks AMP Bank and MyState Bank all saw arrears rise over the 2023 financial year, as rising interset rates and lower savings buffers strain borrowers.

It comes as a survey conducted by WeMoney in partnership with Experian found one in two Australians are financially struggling with 90 per cent having already been impacted by the rising cost of living and 50 per cent looking to refinance their debt products in the next year.

However, S&P Global Ratings (S&P) recently warned that the arrears peak is not expected until next year, as the cumulative effect of the Reserve Bank of Australia’s (RBA) rate hike rolls through.

S&P said it expected owner-occupier arrears to continue to increase faster than investor arrears, due to the higher income profiles of investors, after prime mortgage arrears rose to 0.97 per cent in June 2023, up from 0.95 per cent recorded in March.

[Related: Brokers see uptick in new refinancing clients: MFAA]