Finance holiday

Now here is an interesting idea.  A 1 year mortgage holiday from some banks in Australia and possibly in NZ as well.

Reading the fine print I’m guessing it is only a few really good customers (higher equity ratios?) who will qualify but it does offer some hope that banks are taking a more positive long term view.

I’m also guessing that as NZ banks are all AU owned thewre is an opportunbity here for the NZ government to talk to their Federal counterparts in Australia.

As home ownership rates are dropping and more people in both countries are renting I’m not so sure what the net effect of this will be but perhaps it will slow down some of the flow on effects of a slower economy.

“Westpac bank will let some struggling borrowers take a year-long break from repayments as part of various measures to help those hit by the recession.

Westpac is Australian-owned. It is the first bank in New Zealand to offer a repayment holiday.

It is also offering to allow some borrowers to make interest-only payments, or extend the period of their loan.

The bank says it will brief staff on the appropriate way to manage situations of short-term financial hardship where people cannot meet their mortgage obligations.

It will offer assistance on a case-by-case basis, as the option of delaying repayments will not be suitable for all borrowers.

The Australian Bankers Association announced last Sunday that the Commonwealth, NAB, Westpac and ANZ banks will postpone home loan repayments for up to 12 months for people in hardship.

The association said it had struck a deal with the federal Government to help people who have lost their job and are struggling to pay the mortgage.” RadioNZ

What I’m more interested in is what the detail criteria are and how this all plays out.  I suspect some of this has to do with exit fees on mortgages being so high that breaking the mortgage would leave the clients even worse off.

The other scenario is probably where selling the property won’t repay the bank’s loans because the property is now worth less than the loan.

” In another case, a beachfront unit sold for less than the mortgage but the finance company involved would not allow the sale to proceed, as the mortgage over the property could not be discharged. The lender will now handle the sale, he says.”  More detail over here SMH.

“Australia is headed for a macroeconomic crisis as spending plunges and people get rid of debt, then a housing crisis as people with mortgages lose jobs and massive defaults on loans as people cannot pay them. “

In that case the bank really has a mutual interest in the status quo even if they might forgo some short term repayments.

I believe most banks will grant most performing customers a 3 month mortgage repayment holiday anyway so a 12 month “holiday” could be worth asking for.

Although it is a good idea to be clear on the extra costs as they can be substantial. Interest only is a better idea if you can get that.

“That is because the interest keeps compounding, and is added to the end of the loan. ” Herald Story

According to some of the smartest people I know we need to both reduce debt and keep spending in order to create a viable pathway foward.

That sounds like a contradiction but I’m guessing the key is to reduce exposure to credit as far as possible and try to pay cash for bills as they come due.

And dare I say it – we should be looking for more sustainable business model than the boom and bust cycle most of us have grown up with.

What I’d be looking for as a business is a way to cover late debtors payments which seem anecdotally to be rising and hopefully avoiding any major defaults.

On the more positive side it does seem that if you have cash you should be able to negotiate better terms of trade and more leverage as a buyer.