Westpac offers 'mortgage holiday' to struggling homeowners

Westpac is the first bank in New Zealand to follow Australia's lead and offer 12-month mortgage holidays.

The decision is part of the bank's new set of measures to help financially stressed customers.

Australia's biggest banks are offering customers a 12-month holiday after pressure from their Prime Minister Kevin Rudd to go easy on those who had lost jobs and were struggling to pay their mortgage.

Last night Prime Minister John Key said he welcomed the positive step to help those New Zealanders who had lost their jobs and still had to service their mortgage. "We hope other banks will follow suit," he said.

Westpac New Zealand discussed its proposals with Mr Key before announcing it would offer customers new options of interest-only repayments and to extend the period of loan contracts.

But while many customers will welcome the new offers, Westpac acknowledged that postponing loan payments for any period would increase debt, and therefore may not be suitable for many borrowers.

Spokesman Craig Dowling said the bank agreed with comments from budget advisers about the inherent dangers of mortgage holidays - for like all holidays they ultimately have to be paid for and would be careful in the way it applied the options.

Chief executive George Frazis said the bank would work with borrowers to determine the most appropriate option in light of individual circumstances.

He said the bank's principles were intended to help reassure all customers, not just those facing job insecurity.

"The most important action that can be taken in times of hardship is for customers to talk with their bank early, and that is what Westpac wants to encourage," Mr Frazis said.

He said the bank had been active in helping financially stressed customers in the past.

He said in the previous financial year Westpac New Zealand spent more than $500,000 on its financial literacy programme.