Rising interest rates bite: Bank won't lengthen mortgage, distraught owner forced to sell

A mortgage holder unable to foot rising interest rates pleaded with Kiwibank to extend her loan to a 30-year term so she could afford it but the bank refused - so she's forced to sell.

But a Kiwibank spokesperson said the bank was working closely with customers, proactively monitoring affordability and had a hardship process to help people but it saw no major default uplift.

Extending a loan term to 30 years might not be in people's best interests, the bank spokesperson said.

"Under responsible lending rules we encourage our customers to reduce debt over time. Extending a mortgage out to 30 years as interest only may not be considered responsible lending," the spokesperson said.

The homeowner's mother told the Herald about her daughter's distress after it was reported Ray White Remuera has a specialist agent working with lenders on mortgagee sales.

The agent, Cherry Killgour, said: "Obviously, the banks are working with the owners."

She has places in New Lynn and Lynfield listed for mortgagee sales after lenders called up the loans. Killgour is running a specialist service to help vendors of mortgagee sales and that service works nationally. Appraisals of distressed sales outside Auckland were underway, she said.

Cherry Killgour of Ray White Remuera works on mortgagee sales. Photo / Supplied

But the mother said that didn't happen for her two daughters, both in financially distressed situations.

"One comment resonated that 'banks are working with people'. This is absolutely incorrect. Both my daughters have or are facing increased mortgage repayments which are out of their reach yet the bank has responded with a resounding no to extending their mortgages back out to 30 years/interest only," the mother said.

Both women have Kiwibank mortgages.

The Kiwibank spokesperson said New Zealand had been in a low-interest rate environment for a long time.

"Now we're in a rising interest rate environment and seeing more normal levels. Many home loan customers will be facing into higher interest rates as their loan rolls over. We are proactively monitoring affordability and happily we are seeing our customers making wise choices especially when it comes to discretionary spending. To date, Kiwibank has seen no significant uplifts in home lending defaults within normal seasonal levels," the spokesperson said.

The bank had a clear hardship process to cover short-term changes in circumstances like losing a job, a medical event or children arriving.

"If customers require support, we will work with them to identify the best option for their circumstances at that time. It's really important that customers are honest with their bank about their life situation and if there is a change in circumstances so we can understand their specific financial situation and what their income and expenses are," the spokesperson said.

Hardship support options could include extensions to interest only, deferred payment terms and term extension, she said.

Short-term home lending support gave most customers time to restore their incomes or to find replacement employment so their loans can be put back onto a reasonable repayment plan, she said.

But the mother said one daughter's family had been reduced to one income with young families/baby arrival imminent.

"Their emails or phone calls have been met with a direct no and no advice, assistance, compromise has even been suggested by the bank," the mother said of Kiwibank's response.

Both daughters were repaying principle and interest. The only reason the two owners had asked to change was that the loans were coming up for renewal.

"The increase of interest rates is out of their reach. One daughter's house has and still is on the market due to the bank not offering any assistance with extending the loan period or making payments interest only for a short period," the mother said.

She is giving both daughters financial assistance.

"I just wanted to bring attention to the fact that both have received a flat no to their requests. The bank has not offered any assistance," the mother said.

In early April home loan borrowers with at least 20 per cent equity could get a one-year fixed term special of 3.99 per cent with Kiwibank or 4.55 per cent over two years.

But by June, the bank upped its one-year rate from 4.85 to 5.19 per cent and its two-year rate to 5.69 per cent. Today, it advertises a fixed three-year rate at 5.89 per cent and a special one-year rate at 4.95 per cent. Variable rates, though, are 6 per cent.

Trade Me today lists 17 places for mortgagee sale in New Zealand - houses and land.

CoreLogic research head Nick Goodall is seeing only a slight increase in mortgagee sales.

"There were 21 mortgagee sales in this year's second quarter, up from an historic low of six sales in the previous quarter. In long-term context, we are still well down on average. The peak was after the global financial crisis with 777 mortgagee sales in the third quarter 2009 so we're a long way off that," Goodall said.

The Herald's nation of debt series showed housing debt has risen at a slower pace in the last year but the cost of servicing that debt has gone up sharply.

Reserve Bank data showed housing debt rose 6.9 per cent to $339.41 billion in the year to May 31, much slower than the 11.5 per cent growth a year ago.

But at the same time, one-year fixed-term rates jumped from a record low of 2.25 per cent to over 5 per cent.