Diana Clement: Financial help available in times of tragedy

The personal financial impact of the Christchurch earthquake should be an eye-opener for everyone. Photo / Greg Bowker

No one expects when they take out a mortgage to be unable to make payments. That scenario has suddenly become a reality for many people in Christchurch.

Some who survived the September earthquake financially intact may be facing fiscal disaster this time around. Losing your job, a business, or multiple tenants can be enough to tip some people over the financial edge within weeks.

The personal financial impact of the Christchurch earthquake should be an eye-opener for everyone. Large-scale damage from earthquakes is relatively uncommon, albeit a real possibility in areas such as Wellington and Hawkes Bay. Yet catastrophic events happen to individual Kiwis almost on a daily basis.

These events don't always make the headlines. Perhaps a breadwinner dies in a car accident or from a heart attack. Or someone becomes disabled. According to insurer Sovereign, 29 per cent of New Zealanders will be diagnosed with long-term illness or disability at some time in their lifetime.

In Christchurch, as with the Pike River Coal disaster last year, the government, relief agencies, banks and other lenders offer immediate financial assistance to those affected.

Most banks, for example, are allowing the temporary suspension of payments on all loans including credit cards, waiving early withdrawal costs for term deposits and considering adjustments to lending limits to tide customers over financially for the next three to six months. In some cases loan terms can be extended, or the repayment transferred to interest-only, thus reducing payments for now.

At the BNZ in Christchurch, for example, local branch managers have been given the authority to make decisions based on a customer's individual needs, says chief operating officer of retail Glenn Patrick. Nine of the 17 BNZ branches in greater Christchurch were operating this week.

The same type of financial relief being offered by banks across the board in Christchurch can be offered to individuals with personal tragedies, whatever they may be, says Patrick.

People need to come forward and ask for help, however. Don't just go quiet. One missed mortgage payment isn't going to end in a mortgagee sale, he says. Pay what you can to show you're willing.

Hire-purchase providers and other fringe lenders haven't been quite so forthcoming about the Christchurch earthquake as New Zealand's High Street banks. Of the leading hire-purchase and store-card providers such as GE Money, Q Card, and Farmers Finance card, only GE had any mention of the Christchurch earthquake on its website this week.

The lender made no specific promises of what it was offering, but highlighted its hardship number, 0800 288 656, and email address, Hardship.NZ@ge.com.

Some borrowers have payment-protection insurance to cover payments. It's not unusual for borrowers to fail to realise they have cover.

Consumer finance borrowers who hit hard times should also be aware of the hardship provisions in the Credit Contracts and Consumer Finance Act (CCCFA), which allow you to ask your creditor to reduce the regular amount you pay or to postpone payments.

The options are only available to people who were up-to-date with payments at the time of application and have suffered "unforeseen hardship". The creditor has to consider your hardship application, but isn't forced to accept it. If the lender doesn't accept, the Disputes Tribunal can overturn the decision.

Another option if you really can't make repayments is to get a summary instalment order through the Official Assignee, which means creditors can't take action for three years, or you can use the No Asset Procedure, which is an alternative to bankruptcy and clears debts.

One would hope that the banks and these other financial institutions won't be loading black marks against individuals on their credit records following this tragedy. There is the opportunity to appeal to Veda Advantage if they do, says managing director John Roberts.

Repayment holidays aren't a financial magic potion. On one hand, repayment holidays could be the difference between keeping and losing your home in the next six to 12 months. On the other, the interest you're not paying during the repayment holiday is added to your loan (capitalised), which means you end up paying interest on interest after the end of the holiday.

With high interest loans such as hire purchase, credit-card balances and personal loans, your debt compounds pretty quickly. Too long a holiday and you could find yourself in a real financial mire when you have to pay the outstanding sum back.

Some of the people that the BNZ's staff members saw this week in Christchurch already had their credit maxed out before the earthquake. How those people will cope with another 180 days of interest loaded on is anyone's guess.

In the aftermath of a tragedy, some people will retreat into their shells and not seek the help that is available from the government, agencies such as WINZ (Work and Income New Zealand), ACC, private charities and even budgeting services.

They should come forward.

In Christchurch, WINZ has announced an Earthquake Job Loss Cover payment of $400 a week for full-time employees for the six weeks from the date of the earthquake.

It is also making Civil Defence Emergency Payments for food, clothing, bedding, accommodation costs, and payments to house owners for billeting evacuees.

The payments are non-recoverable, which means they do not need to be paid back, unlike some other advances made by WINZ. If, however, you subsequently receive insurance payouts for the same items, you may need to reimburse WINZ.

Where a loved one has died or been injured in the quake, the surviving partner may be entitled to ACC compensation payments or grants for the funeral or childcare costs.

The disasters of the past 12 months have brought into perspective the need to pay down your mortgage and other debt as fast as you can even if you feel bulletproof.

There are two main reasons for this:

The smaller your mortgage, the less you have to pay in times of hardship, which can hit anyone, as Christchurch has shown.

If you can overpay your mortgage, then you can take a longer holiday than the period offered by your lender in the case of an emergency.

Recent events also bring into focus the need for insurance. Ordinary buildings insurance policies almost always pay out for homeowners to rent other property for a period of time or cover a landlord's rent for a fixed period - although the experience since September suggests that these periods may not be long enough.

Those Christchurch people who also have life, business-interruption and income- or mortgage-protection insurances where relevant, will be breathing a small sigh of relief. These insurances are expensive, but the payouts worthwhile when they are needed.

Some of the worst-hit people financially over time will probably be business owners who lose their businesses and property investors who are unable to get tenants.

Unless they're particularly well insured, the business owners may be left with loans to pay, but no livelihood. In the case of small businesses those loans will often be secured on the owner's own home, which could leave the individual jobless and homeless.

Many property investors without tenants could soon run into trouble if they find themselves paying mortgages on their own home and one or more rental properties, with no rent and/or income coming in. Most building insurance policies have a loss-of-rent clause. In many cases, however, it will run out before the properties become lettable again.

If the house is a write-off and the Earthquake Commission and insurer pay out, that money will be paid into the mortgage, reducing or eliminating most of the investors' outgoings.

If the house is to be repaired and can't be let until those repairs are made, the investor could have cash flow problems.

One such landlord, who posts on the PropertyTalk.com website under the name "ream", said that his EQ payout from September was being held by the ASB against the mortgage, and AMI hadn't yet paid out.

The Christchurch earthquakes show that any one of us could face some or all of these problems if a personal tragedy befell us.