Dollars and sense: How do loan hardship rules work for struggling borrowers?

Sunday, 22 February 2026

Senior business reporter Rob Stock answers your money questions. Got a question for Sunday magazine? Email it to sundaymagazine@stuff.co.nz

QUESTION: How do the mortgage hardship rules work?

ANSWER: Too often people let their loans get really behind without seeking help. This is a mistake. Financial mentors have increasingly been helping people from the middle ranks of the income ladder, when they suddenly fall down a few rungs after events like redundancy, relationship break-up, and illness. There are the budgeting services, and there should be one near you. Do not be ashamed of going to them. They are professionals, and decent human beings. They have seen everything. Nothing you can tell them will shock, or surprise them.

There are specific hardship laws borrowers can call upon, and when it comes to home loans, quick and complete disclosure to your bank is a must. The Commerce Commission has a good guide to hardship applications on its website, but in a nutshell, the borrower must be unable to reasonably meet their debt repayments, and believe that the bank could help by doing something like temporarily reducing, or suspending repayments, or extending the loan term. The borrower must make their application before falling for than two months behind, failing to make four or more consecutive repayments, or been in default of a repossession warning notice or Property Law Act notice. The lender must consider the hardship application in a careful, diligent and skilful way, and must treat the borrower reasonably and in an ethical manner.

I do not trust the consistency of moral rectitude of banks any further than I could throw a branch, but I do believe banks really, really, don’t want to force the sale of homes.

They truly hate the idea that the public should come to see the huge mortgages they make us carry athe potential for financial peril. And there is peril. At the end of December 1.37% of home loans were recorded as having overdue repayments. This risk is why I have always advocated people go hard on their home loans to get themselves as much breathing space as possible, in case they suffer a bit of bad luck.

There is something galling about banks making huge home loans and then being in a position of power when events in someone’s life reduce their income, or ability to cope. A truly civilised country would have a neutral government-funded service to manage hardships. A recent Banking Ombudsman case showed a man, who got a $1.3 million loan from the bank in August 2021 to buy his former partner’s share in their home. That’s a huge loan. The partial nature of the ombudsman’s note means I have no idea whether the chap had any other debt to the bank, or what his income was. Two years later, he told the bank he was struggling, and asked the bank for help. The bank gave him a three-month deferral of repayments. Relations between the bank and the borrower then broke down. It is clear the man was getting no sensible support outside the bank. Remarkably, the bank accepted a repayment plan proposal from him, despite not getting all the documents it asked him for. He failed on those repayments.

Such tales haunt the small hours of people with home loans. But we can learn from them.

- Sunday Magazine