Photo: RNZ
A couple who discovered they could not afford their mortgage soon after they purchased a house have had to withdraw their complaint against their lender.
In 2021, the pair wanted to sell their home, consolidate some debt and buy a new property, Financial Services Complaints Ltd (FSCL) said, which handled the complaint.
Initially, they planned to borrow $280,000 but their home sold for less than they expected and the debt they wanted to cover was a bit higher, so they ended up needing to borrow $360,000.
At first they thought this was unaffordable but a mortgage adviser showed them Working for Families tax credits and child support they were entitled to.
With that additional income, the lender calculated that they had living costs of $4020 a month. With a monthly loan repayment of $2100, it was worked out that they would have a monthly surplus of $1200. Even if the interest rate lifted to 8.39 percent, the lender calculated a monthly surplus of $600.
The loan was approved but almost immediately the couple fell into arrears and spent the next two years struggling to keep up with the payments.
They had to use their KiwiSaver accounts to pay some of the loan arrears and applied for hardship relief.
In the middle of last year, the lender started the mortgagee sale process and the couple said they would sell the property themselves.
They sold it for less than they hoped but enough to clear the loan.
FSCL said the man was "deeply disappointed" at how events had unfolded. They were left renting and unsure whether they would be able to buy another home.
He said the lender should not have lent them the money in the first place and had not done enough to help.
But the lender said its affordability assessment supported the decision to lend and said they did not meet the hardship criteria.
The man said when things went wrong the only thing the lender could suggest was to submit a hardship application but that was declined.
He said the first time they saw the amount of the loan repayments was at their lawyer's office when they were signing the loan agreement. He said he knew then that It would be a struggle.
He said when the loan came off its one-year fixed rate, the floating rate was higher and the lender refused to allow them to refix, making it even more difficult to cover the repayments.
FSCL said the pair had missed payments as soon as the loan was drawn down, which could indicate a mistake in an affordability assessment.
"However, when we reviewed the information presented to the lender, both the income and expenses calculations were supported by credible information.
"We went through the affordability calculations with [the man], then asked what happened after they borrowed the money. [He] said that the child support payments unexpectedly reduced substantially, meaning they could not afford to repay the loan. [He] agreed that neither he nor the lender could have known at the time they borrowed the money that this was going to happen.
"We also explained that, from the diary notes, it appeared that the lender was trying to help, but the loan was structured over a 30-year term and so there was no room to restructure the loan and reduce the payments. While selling the house was not something anyone wanted, it seemed to us that the lender had been reasonable in giving [the couple] a couple of months to sell the property themselves."
FSCL said the lender had provided evidence of a letter of offer disclosing payment amounts days before the agreement was signed in the lawyer's office.
"We explained that while it seemed unfair that the lender would not allow [them] to re-fix the loan term at a lower interest rate to reduce the payment amounts, [they] had been struggling to pay those reduced amounts for quite some time. We suggested that if they had been able to enter another fixed term loan, and the lender took mortgagee sale action before the fixed term ended, [they] may have had to pay an early repayment cost."
The complaint was withdrawn.
- This story was originally published on Stuff