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Does Hardship apply to an Investment Property

Monday, November 01, 2010 - Posted by Philip Harvey

You have a loan where the debtor has borrowed to buy a house as an investment & that loan is now in arrears. The debtor has been sent default notices & has now submitted a Hardship Application. Does hardship actually apply?

The National Credit Code (NCC) was extended to cover loans given to purchase / renovate / improve a residential property for investment purposes. Section 72 of the NCC allows a borrower to request a change to the terms of their credit contract on the grounds of financial hardship. As the NCC applied to residential property brought for investment purposes, Hardship does apply.

The finer print:

  • Credit for residential investment purposes was not regulated by the UCCC. The new NCC commenced on 1 July 2010. An existing  loan for investment purposes that was written prior to 1 July 2010 is not regulated by the NCC.
  • External Dispute Resolution (EDR). We note the above point about contracts prior to 1 July 2010, your EDR scheme may still get involved & force a binding decision on you contrary to the above.

An aside note about Tenants & Hardship:

Tenants can now apply for hardship and be given a 'payment holiday' and not have to pay there rent for a period, with increased once payments resume to catch up. Whilst this is nothing to do with the lender, there is a natural flow on effect. This may see owners of investment properties struggle with payments whilst the payment holiday occurs. You may find the investor applying for hardship with there lender in these circumstances.

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