Australians struggling with mortgage repayments are urged to contact their lenders as a matter of priority, as financial counsellors experience a surge in demand for support.
Mortgage holders have this year been dealing with a financial double whammy - high living costs and increased interest rates as the Reserve Bank seeks to quell those inflationary pressures.
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Since April, the RBA has increased the rate from 0.1 per cent to 1.85 per cent in August.
While the rise may not have resulted in large numbers of people defaulting on their mortgage payments, some economists believe the authority will seek to bring the rate up to more than 3 per cent.
“We certainly have had an increase in people who are anxious about the rising interest rates,” National Debt Helpline financial counsellor Deb Shroot told 7NEWS.com.au.
“Some of them are in stress already and already struggling with repayments.
“Other people are calling because they’re anxious about what’s going to happen, because they know in the future they’re really going to struggle.”
The most recent Roy Morgan data shows more than 17 per cent of mortgage holders - or 762,000 people - were at risk of mortgage stress in the first three months of the year. That was when interest rates were still at 0.1 per cent.
So, what can people do if they are under mortgage stress?
What should you do first?
Shroot says one of the first things people must do is understand why they are under duress.
“It could be because of the cost of living. It could be because interest rates are rising,” she said.
“Is it because you had an unexpected expense or maybe overcommitted with added debt?
“But also, some people may have had a change in circumstance.
“For example, they might be a casual worker and not getting the hours they were getting previously. Maybe someone in their family was sick. There could be separation issues as well, or domestic violence.”
Are there ways you can cut the fat?
Another early step to address mortgage stress is to check discretionary spending.
As well as trying to shop around for a better deal on such things as utilities and groceries, Shroot urges people to ensure they are claiming any discounts they may be entitled to via a concession card.
For example, some concession card holders may be entitled to a rebate on their power bills.
When it comes to figuring out options, Shroot advises people to determine whether their financial difficulties are short, medium or long-term.
A person whose earning capacity has been impacted by something such as chronic illness would be facing long-term difficulties, for example.
Such a determination will “dictate the options that will be available”, she said.
Be open and honest
One of the biggest pieces of advice is for people to be open and forthright with their bank or lender.
Chris de Bruin, Westpac’s head of consumer banking, said customers should know help is available when needed.
“We encourage customers who would like to discuss their home loan to give us a call so we can talk through their options,” he told 7NEWS.com.au.
“For those who need additional support our hardship team is ready to assist with a range of tailored support options.
“Sometimes customers can feel embarrassed about calling their bank, but the sooner we know there is an issue the faster we can tailor a solution to help.”
Hardship options
Shroot says the earlier a customer engages with their bank, the better.
“The earlier you engage, the more options are going to be available for you. I would say, engage early, be open with your bank,” she said.
“They might have some solutions available for you that you might not be aware of.
“There are hardship programs they might be able to offer you.
“If you do qualify for a hardship option, it might include no payments for a certain period of time, for example.
“Sometimes the bank is able to offer you a cheaper or more suitable product.
“The bank is able to help you with whatever products you have with the bank but, if there is more going on, or you have multiple debts, then a financial counsellor can look at everything.”
Determining those options isn’t a one-size-fits-all exercise, Shroot says.
There will be a range of different factors lenders consider in presenting options, including the equity in the borrower’s home, how many debts they have and what is causing the problems.
One of the options highlighted by de Bruin was moving to fixed loans.
“New and existing customers could fix their loan which may provide more certainty over their repayments or split their loan between fixed and variable rates,” he said.
“We’re also continuing to engage with customers coming off fixed rate terms to help them understand what options are available.”
What should you not do?
But the key message from Shroot for people undergoing mortgage stress is to do something about it.
“Don’t ignore notices. Don’t ignore the fact you’re going to default on your loan,” she said.
“If you receiving communication from your bank, it’s possible this is forming part of a formal process to repossess your home.
“But, in saying that, don’t panic either, because there is a very formal process that the bank needs to go through to repossess your home. Banks don’t want to repossess people’s home.
“They do want to help people to keep paying. It’s not a good outcome for anyone to force a sale.”