Alex Young and his fiancee bought what they thought would be their family home for years when the real estate market peaked. Then they were then hit by the January 2023 flooding. Photo: ABIGAIL DOUGHERTY / STUFF
A West Auckland homeowner fears he is backed into a corner and facing bankruptcy due to Auckland Council's storm recovery scheme.
Alex Young and his fiancée bought their West Auckland property at the height of the market in late 2021.
By 2022, house prices had dropped and they were in negative equity, where they owed more to the bank than the property's value.
"It's not an issue, so long as we can continue to pay our mortgage on time," Young said. They were in for the long haul, planning to marry and start a family.
But when the Auckland Anniversary deluge hit in January 2023, a blocked and swollen creek pushed floodwater 1.5m deep onto their property and 30cm up the walls of their home.
Insurance paid for temporary accommodation, Young said, but as that came to an end, they were ineligible for further financial help with accommodation because their house is owned by a trust, so they renovated and moved back in.
But as the months have rolled on, houses around them have been declared category three, unsafe from future flooding, by the council's Recovery Office, and neighbours have moved on.
Also in category three, Young said he's been told he has two options. The first is to go ahead with a voluntary buyout which will be based on the value of their property immediately prior to the flooding, less a 5 percent owner contribution.
Young calculates that will leave him owing the bank around $100,000, and without a deposit for a new home.
The other option is to reject the buyout offer and stay put, with no neighbours, and live in a house that has been declared to have an "intolerable risk to life" from flooding.
"But that means I'm going to lose insurance cover because the council has already labelled my property category three, and no insurance company wants to cover category three properties."
Young fears the bank will recall the home loan, which will put him into bankruptcy, on top of losing his home.
"So it's a very tough decision, a tough situation, I'm trapped," he said.
"It's going to affect my career as well. Because for my line of work, I cannot be bankrupt."
Young holds a professional qualification, and one of the requirements for that qualification is a clear credit record.
He said he's been financially responsible but is now backed into a corner, through no fault of his own.
Whereas the buyout process enables people who have made a capital gain on their property to sell and move on, the solution doesn't work for first home buyers in negative equity, he said.
Chair of community group, West Auckland Is Flooding, Lyall Carter estimates there are around 10-15 homeowners in urban West Auckland who will find themselves in a negative equity position after the buyout process is complete.
Carter said a policy change is needed where negative equity can become a special circumstance considered during the buyout process on a case-by-case basis, similar to how those without insurance are dealt with.
"Taking families and individuals out of the danger of future floods to then throw them into a brutal, financial storm that many will never recover from must be averted at all costs."
Auckland Council's group recovery manager, Mat Tucker, said the recovery office is aware of people in hundreds of different situations.
The core objective of the one-time, council and Government-funded, voluntary buyout scheme is to help people get out of harm's way, and it also has to make prudent use of ratepayer and taxpayer money, Tucker said.
"Unfortunately this does mean that some people may be financially impacted by accepting a buyout offer. However, the council has to apply the scheme terms fairly and consistently and in line with the policy decisions made by the Governing Body. We can't go outside the policy terms on the grounds of financial hardship."
Homeowners who opt in to the buyout process can access a $5000 grant for legal or financial advice, he said.
Tucker said the council met with the New Zealand Banking Association and asked banks to consider the unique situations of some storm-affected customers and to offer relevant support.
NZ Banking Association chief executive Roger Beaumont said that once banks are aware of a customer's category three status, they can work through available options.
"Anyone who is experiencing financial difficulty should speak to their bank as soon as possible," Beaumont said.
"Banks have dedicated hardship teams who can talk through available options, depending on the situation. Each case is different, and the sooner you talk to your bank, the better they'll be able to help."
Young's frustration is that before and after the flooding, he wasn't in financial hardship - "I can pay my mortgage, I can pay bills".
"My problem starts when council comes and says you are category three. They think they are trying to help, but they are not."
- This story was originally published on Stuff