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Saving the Home in hard times.

August 22, 2020

It is difficult to understand why so many people are taking the unnecessary risk of losing their homes through unmanaged mortgage default when a rescue package is available simply for the asking.

The cruel reality of the economic crisis created by Covid-19 is that is not only those industries which are reliant on overseas clientele which are at risk of failure. Thousands of people employed in the tourism industry and an unknown number in secondary and tertiary education face an uncertain future with our borders closed at all but returning New Zealanders for the foreseeable future. In turn some of the communities which rely on those incomes are now in serious financial trouble in spite of government subsidies and assistance schemes. 

The last time we had an economic catastrophe of this magnitude was in the 1980s when the then Labour Government’s radical financial reforms, known ever since as Rogernomics, wiped countless millions of dollars off the board. During those tragic times those who were locked into long term mortgages on homes farms and businesses or share-milking contracts could only watch with increasing despair as their interest rates increased almost weekly. Among the hardest hit were many young farming families who had been encouraged to borrow heavily, by their accountants, trading banks and the former Rural Bank, to buy dairy herds or properties. In some cases their interest rates increased from below seven percent to above twenty percent in a single dairy season as those same banks and lending institutions tried to protect themselves from the fallout and threw their customers to the wolves instead sharing the hard times with them.

Mortgagee sales left many young farming families with no equity, no job and nowhere to live and there were many tragic suicides as a consequence. Those who survived that terrible time never forgave the political architects of the financial reforms or their banks. Many young and skilled rural people turned their backs on farming and many retired dairy farmers were faced with returning to full time work as share-milkers could no longer be attracted to the industry. The average age of working dairy farmers went from mid-thirties to mid-sixties in two dairy seasons.  

This time it seems the dairy industry at least in Waikato will survive the storm and lending institutions, led by the government and the Reserve Bank, are taking a very different approach to forty years ago with payment deferral schemes and “mortgage holidays”. 

The recently released Infometrics Quarterly Economic Monitor for the June 2020 quarter shows that the Waikato region has not been hit as hard as other parts of the country, where the fall in economic activity has been as high as 11.8 per cent particularly in tourist centres like Queenstown and Rotorua where many home owners are without a reliable and mortgages are in default. 

Across the country thousands of homeowners have missed mortgage payments but have not taken advantage of assistance schemes. While an estimated 83, 000​ homeowners have bought into the schemes, which will run until March 31 next year, there were at least 10, 000​ mortgages in arrears which are not protected by the referral scheme and another 13,500 mortgagees have missed payments.

Many people will have little or no control over their destinies for the next year or more as the economic downturn bites even deeper and the ability of the government to fund assistance schemes reaches borrowing limits. Businesses will close, many probably never to restart, jobs will be lost and families will come under increasing stress. Already we have an increase in family violence triggered in some cases by fear of the unknown and frustration 

Perhaps we need to recognise that, like the upheaval of the 1980s, the most financially vulnerable people in society are so overwhelmed on so many fronts that there is no time or mental ability to make logical decisions. Surviving day to day is all they have the ability or time for. There will also be those who fear their applications will be declined but, in these extraordinary times, none should be. 

Perhaps the banks and lending institutions should take the initiative and not wait for mortgage defaulters to ask for help. It would not be impossible for every mortgage in arrears to be simply put on hold until formal arrangements can be made. That would at least avoid compounding penalties. That might be a leap of faith few lenders will want to take without government or Reserve Bank encouragement.

The consequences of not taking action of that sort do not bear thinking about as those who survived the worst of the Rogernomic reforms will testify. On top of the many unavoidable hardships people face in the months ahead losing the family home would be unforgivably tragic and completely avoidable.