Financial hardship assistance for mortgage holders

A borrower who cannot meet home loan repayments has rights that do not depend on the lender's goodwill. Section 72 of the National Credit Code, which is Schedule 1 to the National Consumer Credit Protection Act 2009, allows a debtor to notify a credit provider that they are unable to meet their obligations, and requires the provider to consider changing the contract in response.

These rights are used far less than they should be. ASIC's 2024 review of ten large home lenders found that more than one in three people who sought assistance dropped out of the application process at least once because lenders made access difficult, and that 40 per cent of customers who received assistance through a reduction or deferral of payments fell into arrears immediately after the assistance period ended. ASIC's follow-up report in September 2025 found meaningful improvement, including a 58 per cent increase in the number of hardship notices identified by lenders, while noting continued concerns about generic responses that do not address individual circumstances.

The practical lesson is that the process works better when the borrower knows what to ask for and asks early.

What a hardship notice is

A hardship notice is simply notification to the credit provider that the borrower is unable, or will be unable, to meet their obligations under the credit contract. It may be given verbally or in writing. There is no prescribed form, no fee, and no requirement to use the word hardship.

A borrower who telephones their lender and says they cannot make next month's repayment has given a hardship notice, and the statutory timeframes begin. It is nonetheless worth confirming in writing, keeping a record of the date, time and the name of the person spoken to, because the timeframes run from receipt.

The notice may be given before a payment is missed. It is usually better given at that point, because the range of workable arrangements is wider before arrears accumulate.

The 21 day rule

Once a hardship notice is received, the credit provider must respond within defined periods.

• Where the provider has sufficient information to decide whether and how to change the contract, it has 21 days to notify the borrower of its decision. The period begins the day after the notice is received.
• Where the provider does not have enough information, it may request further information from the borrower, verbally or in writing, and must do so within 21 days of the hardship notice.
• Once the requested information is provided, a further period applies for the provider to make and communicate its decision.

A credit provider is not obliged to agree to a request. The obligation is to consider it and to respond. Providers may decline where the borrower cannot demonstrate a reasonable cause, or where there is no reasonable prospect that the borrower will be able to meet the varied obligations.

If the lender does not respond within the statutory period, or declines, the borrower may take the matter to the Australian Financial Complaints Authority, which is free for consumers.

What lenders can offer

The arrangements available are broader than most borrowers realise, and the right one depends entirely on whether the difficulty is temporary or ongoing.

Arrangement	How it works	Best suited to
Reduced repayments	Paying less than the scheduled amount for an agreed period	A temporary fall in income
Interest only for a period	Principal repayments suspended, interest continues	A defined interruption such as parental leave
Full deferral or moratorium	Payments paused, interest generally continues to accrue and capitalise	Short, severe disruption such as illness or a natural disaster
Extending the loan term	Permanently lowers the required repayment	A permanent reduction in income
Capitalising arrears	Existing arrears are added to the balance and the loan is reset	Recovery after a resolved difficulty
Switching from interest only to principal and interest, or the reverse	Changes the repayment profile	Structural mismatch between loan type and circumstances
A waiver or reduction of fees and default interest	Reduces the cost of the difficulty	Most cases, and worth asking for specifically
Time to sell the property	An agreed period to sell in an orderly way	Where the position is not recoverable

Two points about these arrangements matter. First, most of them increase the total interest paid, because the debt is outstanding for longer. A deferral in particular capitalises interest, so the balance grows during the pause. That is usually the right trade, but it should be understood rather than discovered later.

Second, ASIC's finding that 40 per cent of customers fell into arrears immediately after an assistance period ended suggests that short arrangements are frequently too short. A borrower should ask what the repayment will be when the arrangement ends, and be satisfied that the figure is realistic before agreeing to it.

The effect on a credit report

Concern about credit reporting is one of the main reasons borrowers delay asking for help, and the rules work in the opposite direction to the common assumption.

The Office of the Australian Information Commissioner states that where a person requests hardship assistance, a credit provider may not list a default on their credit report while it is deciding the request, or until 14 days after telling the person it has refused the request. The exception is where the provider reasonably believes the request was made on the same basis as a hardship request made in the previous four months.

Where an arrangement is agreed, it is recorded as financial hardship information against the repayment history information, and the OAIC states that financial hardship information remains on the report for one year. By comparison, repayment history remains for two years and a default for five.

The arithmetic is therefore straightforward. Asking for help produces a marker that lasts one year and prevents a default being listed while the request is considered. Not asking, and missing payments instead, produces repayment history markers for two years and, if the arrears reach 60 days and $150, a default visible for five. The guide to credit scores and home loans sets out the reporting rules in full.

Before contacting the lender

A hardship request is assessed on the borrower's circumstances, so preparation improves the outcome.

1. Work out the actual shortfall. What can be paid, rather than what cannot. A lender responds better to a specific proposal than to a general statement of difficulty.
2. Establish whether the difficulty is temporary or permanent. This determines which arrangement is appropriate, and a mismatch is the main cause of arrangements that fail.
3. Prepare a simple income and expenditure summary. Most lenders will ask for one.
4. Identify the cause and any supporting evidence, such as a medical certificate, a separation, a redundancy letter or a business downturn.
5. List all debts, because a hardship arrangement on the mortgage alone may not resolve the position if other debts continue.
6. Check insurance. Income protection, mortgage protection, trauma cover or a total and permanent disability benefit may be available, including through superannuation.

It is also worth checking whether the loan can simply be repriced or restructured outside the hardship process. A borrower paying an above market rate may find that a repricing, or a change from a short remaining term to a longer one, resolves the difficulty without any hardship arrangement at all. The guide to how to refinance a home loan covers that option, although a borrower already in arrears will generally find refinancing to a new lender difficult.

What a deferral actually costs

Because most arrangements involve paying less now and more later, it is worth seeing the arithmetic before agreeing to one.

The following is illustrative only. Assume a $600,000 loan at an assumed 6.00 per cent with 25 years remaining, and a repayment of about $3,866 a month. Three common arrangements produce quite different outcomes.

Arrangement	Payment during the arrangement	Effect on the balance
Interest only for 6 months	About $3,000 a month	Balance unchanged, so roughly $5,300 of principal is not repaid
Reduced payment of $2,000 for 6 months	$2,000 a month	Shortfall against interest accrues, adding roughly $6,000 to the balance
Full deferral for 6 months	Nil	Interest capitalises, adding roughly $18,200 to the balance

None of these figures is an argument against seeking assistance. A deferral that preserves a home is worth far more than $18,200. The point is that the cost is real and is repaid later, usually through a higher repayment or a longer term, and that the cheapest arrangement that actually solves the problem is the right one to ask for.

The corollary is that a borrower who can pay something should offer to pay it. Interest only, or a reduced payment that at least covers interest, holds the balance steady and leaves the borrower in a materially better position at the end of the arrangement than a full deferral does. The mortgage repayment calculator can be used to see what a given balance and term require.

Hardship caused by a rate rise rather than an income fall

Not every difficulty follows a loss of income. A borrower whose fixed rate has expired, or who has absorbed a series of variable rate increases, may be meeting repayments that have risen substantially while income has not changed.

The remedies here are different, and several sit outside the hardship process entirely. Asking the existing lender for a rate review costs nothing and frequently produces a reduction. Extending the remaining term lowers the required repayment permanently. Moving savings into an offset account reduces the interest charged without reducing accessible funds. Where the loan is above the market rate and the borrower's circumstances still support an application, refinancing may resolve the position outright.

These options are generally better than a hardship arrangement because they reduce the cost of the loan rather than deferring it. They are also only available while the loan is performing, which is another reason to act before arrears accumulate. The guides to the cost of remaining with an existing lender and to how cash rate decisions affect repayments cover the background.

Free help that is independent of the lender

Several services are free, confidential and independent.

• The National Debt Helpline on 1800 007 007 provides free financial counselling, with counsellors who negotiate with lenders on a borrower's behalf. The OAIC refers to it directly in its credit reporting guidance.
• Mob Strong Debt Help on 1800 808 488 provides free nationwide legal advice and financial counselling for Aboriginal and Torres Strait Islander people.
• Community legal centres in each state and territory provide free legal advice on credit and debt.
• The Australian Financial Complaints Authority considers complaints about how a lender has handled a hardship request, at no cost to the consumer.

Financial counsellors are not financial advisers and do not sell products. Commercial debt management, debt negotiation or credit repair firms charge for work that financial counsellors do without charge, and should be approached with caution.

If the position cannot be recovered

Where the difficulty is permanent and the loan is not sustainable, the realistic options are a restructure that permanently lowers the repayment, or a sale. A sale arranged by the borrower almost always produces a better price than a sale by the lender after taking possession, because the borrower controls the timing, the presentation and the marketing.

Lenders will frequently agree to a period to sell, and will often suspend enforcement while a genuine sale process is under way. Asking for that period early preserves both equity and choice. Enforcement itself follows a defined sequence: a default notice giving a period to remedy the default, then possession proceedings, then sale. Each step takes time, and at each step the borrower retains the ability to negotiate, but the options narrow as the process advances.

If the lender refuses

A borrower who is dissatisfied has an escalation path that costs nothing.

1. Ask for the decision in writing, including the reasons.
2. Make an internal complaint through the lender's complaints process.
3. Lodge a complaint with AFCA. AFCA can consider whether the lender met its obligations, and can require a financial firm to vary a contract. Lodging a complaint generally pauses enforcement action while it is considered.
4. Obtain advice from a financial counsellor or community legal centre, which can be done at any stage and is free.

The single most important point in this article is one of timing. Nearly every option is wider, cheaper and more likely to succeed when it is raised before arrears accumulate. A borrower who anticipates difficulty in two months is in a far better position than one who has missed three payments, and the statutory right to give a hardship notice exists precisely so that it can be used early.

This article is general information and not legal or financial advice. Borrowers experiencing difficulty should contact their lender and, if helpful, a free financial counsellor through the National Debt Helpline.