Consumers are being warned to prepare for changing circumstances after a couple lost their home following two years of struggling to meet mortgage repayments.
The couple raised their case with Financial Services Complaints Ltd (FSCL) after the mortgagee sale in the middle of last year.
They claimed their lender shouldn't have loaned them the money for the house in the first place and said not enough was done to help them.
According to an FSCL case study, the saga began in 2021 when the couple wanted to sell their home, consolidate debt and buy a new property.
Upon realising they'd need to borrow $360,000, this at first looked unaffordable.
Their mortgage broker, however, calculated the couple would have $1200 leftover each month after making their $2100 loan repayment and $4020 for living costs - given they received Working for Families tax credits and the child support payment entitlement. Their loan was stress-tested against an 8.39 percent interest rate and a monthly $600 surplus was calculated, and the loan was subsequently approved.
But the loan suddenly became unaffordable and almost "immediately fell into arrears", FSCL said.
The couple, after two years of struggling to meet repayments, were issued with a Property Law Act notice in the middle of last year to begin the mortgagee sale process.
They "sold the property for less than they hoped, but enough [so] that they could repay the loan", FSCL said.
According to the financial ombudsman service, the couple were "deeply disappointed at the way events had unfolded. They had lost their home and were now renting, unsure if they would be able to afford to buy another home".
They subsequently complained to the lender, which was confident in its affordability assessment and said the couple didn't meet its hardship criteria. As a result, they took their case to FSCL.
However, FSCL said the lender had acted reasonably.
"Based on the information available, we were satisfied that the lender had properly assessed affordability and we could not see any breach of the Credit Contracts and Consumer Finance Act 2003," it said.
"We went through the affordability calculations... then asked what happened after they borrowed the money."
The complainants said their "child support payments unexpectedly reduced substantially, meaning they could not afford to repay the loan", according to FSCL.
But it was agreed the complainants, 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."
The couple said "losing their home just felt so unfair" but were "satisfied with our explanation and agreed to withdraw" the complaint, the case study said.
"Sometimes circumstances change and what was an affordable loan is no longer affordable," FSCL said.
"While lenders are obliged to consider hardship applications to see if there is anything that can be done to allow the borrower to repay the loan, the reality is that sometimes the only option is to sell the property securing the loan.
"We know selling your home is a last resort but, when faced with a mortgagee sale, selling the property yourself gives you some control over how your relationship with the lender ends and the price you may achieve for the property."
