Struggling mortgage holders urged to seek guidance
Issue Date: - Friday, 18 July 2008
Consumer Protection is urging homeowners who are struggling to meet their mortgage repayments to seek help before they fall further into debt.
Consumer Protection Commissioner Anne Driscoll said the combined pressure of interest rate rises, and increasing food and petrol prices is taking its toll on some families.
Data from the Supreme Court of Western Australia shows Civilian Property Possession Applications for the 12 month period to June 2008 were submitted for 686 properties against 453 properties the previous year, an increase of 51.4 per cent and the sharpest increase since the period 2000/2001.
Ms Driscoll said the data should not be analysed in isolation as it does not necessarily represent the depth of financial stress in the community. Many homeowners experiencing financial hardship may sell their home before it is repossessed.
“First homebuyers who purchased their home in the past couple of years are vulnerable because it is unlikely that they have built up much equity in their home, Ms Driscoll said.
“Depending on how much they initially borrowed and movements in property values, they could find themselves owing more than the market value of their property.
“Additionally, people who locked in fixed rates for their loans three years ago and are now seeing their loans revert to current rates at an increase of two to three per cent are also likely to be feeling financial pressure.”
Ms Driscoll added it was important that consumers address any financial problems they are having early on by contacting their lender, a financial counsellor and/or Consumer Protection.
“Borrowers who are stretched financially should continue to do what they can to meet their mortgage repayments to ensure their loan does not go into default. If they think they are going to have difficulty making a full payment they should contact their lender to discuss their situation immediately, she said.
“Persons who can’t seem to make ends meet should also consider contacting a financial counsellor, who can provide free independent information on the options available. Borrowers can locate their nearest financial counsellor by contacting the Financial Counsellors Resource Project on (08) 9221 9411.
“Avoiding the problem and hoping it will go away can make the situation worse if the loan goes into default, the outstanding debt increases and the lender seeks to repossess the property. If the borrower owes more than the house is worth, they will still be liable to pay off the remaining debt if the lender repossesses their home.
“Financial counsellors talk of concerning stories of families relying on numerous credit cards and bank overdrafts to keep up with their repayments, only to see their debts spiral out of control and their home be repossessed.
“We are therefore urging people in financial difficulty to act now and talk to their financial institutions and seek assistance from a financial counsellor. Depending on the circumstances, borrowers may be able to alter their repayment schedule or refinance their debts to lessen their mortgage repayments.
“In some instances, it may be advisable for borrowers to sell the family home before the equity is eroded by default fees or a costly refinance. Financial Counsellors can help inform borrowers on the best option. Selling a home before the lender intervenes also allows borrowers to control the marketing of their property and may achieve a higher price. Properties marketed as a “mortgagee sale” by a lender may result in a lower price achieved at auction.”
Ms Driscoll said the Consumer Credit Code also has provisions to protect people experiencing temporary hardship such as loss of employment or illness.
“Homeowners can apply to their lender for a hardship variation. Such variations allow borrowers to lower or even suspend their repayments for a set period. Homeowners will still be required to pay off the loan, but it can give people breathing space to re-arrange their finances and circumstances.
“If you are in temporary hardship and are having difficulty negotiating a hardship variation with your lender, contact Consumer Protection or your nearest financial counsellor.”
Homeowners can find out more information by visiting Consumer Protection’s website www.docep.wa.gov.au or calling 1300 30 40 54