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Forcing people to repay welfare ‘loans’ traps them in a poverty cycle – where is the policy debate about that?

<a href="https://theconversation.com/profiles/hanna-wilberg-1466649">Hanna Wilberg</a>, <a href="https://theconversation.com/institutions/university-of-auckland-1305">University of Auckland</a> The National Party’s <a href="https://www.1news.co.nz/2023/09/26/more-sanctions-for-unemployed-beneficiaries-under-national/">pledge to apply sanctions</a> to unemployed people receiving a welfare payment, if they are “persistently” failing to meet the criteria for receiving the benefit, has attracted plenty of comment and <a href="https://www.1news.co.nz/2023/09/26/nationals-benefit-sanctions-plan-cruel-dehumanising-greens/">criticism</a>. Less talked about has been the party’s promise to index benefits to inflation to keep pace with the cost of living. This might at least provide some relief to those struggling to make ends meet on welfare, though is not clear how much difference it would make to the current system of indexing benefits to wages. In any case, this alone it is unlikely to break the cycle of poverty many find themselves in. One of the major drivers of this is the way the welfare system pushes some of the most vulnerable people into debt with loans for things such as school uniforms, power bills and car repairs. The government provides one-off grants to cover benefit shortfalls. But most of these grants are essentially loans. People receiving benefits are required to repay the government through weekly deductions from their normal benefits – which leaves them with even less money to survive on each week. With <a href="https://www.stuff.co.nz/pou-tiaki/132980318/auckland-mother-serves-up-cereal-for-dinner-due-to-rising-food-costs">rising costs</a>, the situation is only getting worse for many of the 351,756 New Zealanders <a href="https://figure.nz/chart/TtiUrpceJruy058e-ITw010dHsM6bvA2a">accessing one of the main benefits</a>. <h2>Our whittled down welfare state</h2> Broadly, there are three levels of government benefits in our current system. The main benefits (such as jobseeker, sole parent and supported living payment) <a href="https://www.workandincome.govt.nz/products/benefit-rates/benefit-rates-april-2023.html">pay a fixed weekly amount</a>. The jobseeker benefit rate is set at NZ$337.74 and sole parents receive $472.79 a week. Those on benefits have access to a second level of benefits – weekly supplementary benefits such as an <a href="https://www.workandincome.govt.nz/products/a-z-benefits/accommodation-supplement.html">accommodation supplement</a> and other allowances or tax credits. The third level of support is one-off discretionary payments for specific essential needs. Those on benefits cannot realistically make ends meet without repeated use of these one-off payments, unless they use assistance from elsewhere – such as family, charity or borrowing from loan sharks. This problem has been building for decades. <h2>Benefits have been too low for too long</h2> In the 1970s, the <a href="https://mro.massey.ac.nz/handle/10179/12967">Royal Commission on Social Security</a> declared the system should provide “a standard of living consistent with human dignity and approaching that enjoyed by the majority”. But Ruth Richardson’s “<a href="https://www.stuff.co.nz/the-press/christchurch-life/124978983/1991-the-mother-of-all-budgets">mother of all budgets</a>” in 1991 slashed benefits. Rates never recovered and today’s <a href="https://www.1news.co.nz/2022/03/29/benefit-increases-will-still-leave-families-locked-in-poverty/">benefits are not enough to live on</a>. In 2018, the <a href="https://www.weag.govt.nz/">Welfare Expert Advisory Group</a> looked at how much money households need in two lifestyle scenarios: bare essentials and a minimum level of participation in the community, such as playing a sport and taking public transport. The main benefits plus supplementary allowances did not meet the cost of the bare essentials, let alone minimal participation. The Labour government has since <a href="https://www.beehive.govt.nz/release/government-delivers-income-increases-over-14-million-new-zealanders">increased benefit rates</a>, meaning they are now slightly above those recommended by the advisory group. But those recommendations were made in 2019 and don’t take into account the <a href="https://www.stats.govt.nz/news/annual-inflation-at-6-0-percent">sharp rise in inflation</a> since then. Advocacy group <a href="https://fairerfuture.org.nz/">Fairer Future</a> published an updated assessment in 2022 – nine out of 13 types of households still can’t meet their core costs with the current benefit rates. <h2>How ‘advances’ create debt traps</h2> When they don’t have money for an essential need, people on benefits can receive a “special needs grant”, which doesn’t have to be repaid. But in practice, Work and Income virtually never makes this type of grant for anything except food and some other specific items, such as some health travel costs or emergency dental treatment. For <a href="https://www.1news.co.nz/2023/02/27/very-stressful-beneficiary-says-he-cant-afford-msd-debt/">all other essential needs</a> – such as school uniforms, car repairs, replacing essential appliances, overdue rent, power bills and tenancy bonds – a one-off payment called an “advance” is used. Advances are loans and have to be paid back. There are several issues with these types of loans. First, people on benefits are racking up thousands of dollars worth of debts to cover their essential needs. It serves to trap them in financial difficulties for the foreseeable future. As long as they remain on benefits or low incomes, it’s difficult to repay these debts. And the <a href="https://www.legislation.govt.nz/act/public/2018/0032/latest/whole.html">Social Security Act 2018</a> doesn’t allow the Ministry of Social Development (MSD) to waive debts. <h2>Contradictory policies</h2> Another problem is that people on benefits have to start repaying their debt straight away, with weekly deductions coming out of their already limited benefit. Each new advance results in a further weekly deduction. Often these add up to $50 a week or more. MSD policy says repayments should not add up to more than $40 a week, but that is often ignored. This happens because the law stipulates that each individual debt should be repaid in no more than two years, unless there are exceptional circumstances. Paying this debt off in two years often requires total deductions to be much higher than $40. The third issue is that one-off payments can be refused regardless of the need. That is because there are two provisions pulling in opposite directions. On the one hand the law says a payment should be made if not making it would cause serious hardship. But on the other hand, the law also says payments should not be made if the person already has too much debt. People receiving benefits and their case managers face the choice between more debt and higher repayments, or failing to meet an essential need. <h2>Ways to start easing the burden</h2> So what is the fix? A great deal could be achieved by just changing the policies and practices followed by Work and Income. Case managers have the discretion to make non-recoverable grants for non-food essential needs. These could and should be used when someone has an essential need, particularly when they already have significant debt. Weekly deductions for debts could also be automatically made very low. When it comes to changing the law, the best solution would be to make weekly benefit rates adequate to live on. The government could also make these benefit debts similar to student loans, with no repayments required until the person is off the benefit and their income is above a certain threshold. However we do it, surely it must be time to do something to fix this poverty trap.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/212528/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/hanna-wilberg-1466649">Hanna Wilberg</a>, Associate professor - Law, <a href="https://theconversation.com/institutions/university-of-auckland-1305">University of Auckland</a> Image credits: Getty Images This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/forcing-people-to-repay-welfare-loans-traps-them-in-a-poverty-cycle-where-is-the-policy-debate-about-that-212528">original article</a>.

Money & Banking

“When you win, bring it back to Malibu”: Sean Penn loans Oscar to Ukraine

Actor Sean Penn has shown his support for Ukraine in its war with Russia by loaning one of his two Oscars to Ukrainian President Volodymyr Zelenskyy, telling him it could stay on one condition: “When you win, bring it back to Malibu”. A video of the encounter between Zelenskyy and Penn, who is making a documentary about the Russian invasion, was shared by Zelenskyy’s office online and described the gift as “a symbol of faith in the victory of our country”. “It will be in Ukraine until the end of the war.” During his most recent visit to Ukraine, Penn told Zelenskyy that every time he leaves he feels “like a traitor”. “But if I know this is here with you then I will feel better and stronger for the fights,” he said before presenting the leader with his award. “When you win, bring it back to Malibu. Because I feel much better knowing there is a piece of me here.” <blockquote class="instagram-media" style="background: #FFF; border: 0; border-radius: 3px; box-shadow: 0 0 1px 0 rgba(0,0,0,0.5),0 1px 10px 0 rgba(0,0,0,0.15); margin: 1px; max-width: 540px; min-width: 326px; padding: 0; width: calc(100% - 2px);" data-instgrm-captioned="" data-instgrm-permalink="https://www.instagram.com/reel/CktdU1RLvIQ/?utm_source=ig_embed&utm_campaign=loading" data-instgrm-version="14"> <div style="padding: 16px;"> <div style="display: flex; flex-direction: row; align-items: center;"> <div style="background-color: #f4f4f4; border-radius: 50%; flex-grow: 0; height: 40px; margin-right: 14px; width: 40px;"> </div> <div style="display: flex; flex-direction: column; flex-grow: 1; justify-content: center;"> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; margin-bottom: 6px; width: 100px;"> </div> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; width: 60px;"> </div> </div> </div> <div style="padding: 19% 0;"> </div> <div style="display: block; height: 50px; margin: 0 auto 12px; width: 50px;"> </div> <div style="padding-top: 8px;"> <div style="color: #3897f0; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: 550; line-height: 18px;">View this post on Instagram</div> </div> <div style="padding: 12.5% 0;"> </div> <div style="display: flex; flex-direction: row; margin-bottom: 14px; align-items: center;"> <div> <div style="background-color: #f4f4f4; border-radius: 50%; height: 12.5px; width: 12.5px; transform: translateX(0px) translateY(7px);"> </div> <div style="background-color: #f4f4f4; height: 12.5px; transform: rotate(-45deg) translateX(3px) translateY(1px); width: 12.5px; flex-grow: 0; margin-right: 14px; margin-left: 2px;"> </div> <div style="background-color: #f4f4f4; border-radius: 50%; height: 12.5px; width: 12.5px; transform: translateX(9px) translateY(-18px);"> </div> </div> <div style="margin-left: 8px;"> <div style="background-color: #f4f4f4; border-radius: 50%; flex-grow: 0; height: 20px; width: 20px;"> </div> <div style="width: 0; height: 0; border-top: 2px solid transparent; border-left: 6px solid #f4f4f4; border-bottom: 2px solid transparent; transform: translateX(16px) translateY(-4px) rotate(30deg);"> </div> </div> <div style="margin-left: auto;"> <div style="width: 0px; border-top: 8px solid #F4F4F4; border-right: 8px solid transparent; transform: translateY(16px);"> </div> <div style="background-color: #f4f4f4; flex-grow: 0; height: 12px; width: 16px; transform: translateY(-4px);"> </div> <div style="width: 0; height: 0; border-top: 8px solid #F4F4F4; border-left: 8px solid transparent; transform: translateY(-4px) translateX(8px);"> </div> </div> </div> <div style="display: flex; flex-direction: column; flex-grow: 1; justify-content: center; margin-bottom: 24px;"> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; margin-bottom: 6px; width: 224px;"> </div> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; width: 144px;"> </div> </div> <p style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; line-height: 17px; margin-bottom: 0; margin-top: 8px; overflow: hidden; padding: 8px 0 7px; text-align: center; text-overflow: ellipsis; white-space: nowrap;"><a style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: normal; line-height: 17px; text-decoration: none;" href="https://www.instagram.com/reel/CktdU1RLvIQ/?utm_source=ig_embed&utm_campaign=loading" target="_blank" rel="noopener">A post shared by Володимир Зеленський (@zelenskiy_official)</a> </div> </blockquote> After initially hesitating, Zelenskyy accepted the statue and quipped: “We have to win, quick.” Wednesday’s meeting, which marked Penn’s third visit to Ukraine since the invasion began, also saw the actor accept an award from Zelenskyy. The Mystic River star was presented with the Ukrainian Order of Merit of the third degree, which is given to citizens for outstanding achievements in economics, science, culture or military or political activity. “It was with great pleasure that I presented Sean Penn with the Order of Merit of the III degree,” the caption of the clip shared on Zelenskyy’s official Instagram read. “Thank you for such sincere support and significant contribution to the popularization (sic) of Ukraine in the world!” The video also showed the pair walking around Kyiv and arriving at Constitution Square where there is a “Walk of the Brave” - a walkway lined with plaques for world leaders who have supported Ukraine. Penn also has a plaque laid on the ground along the walkway, engraved with his name and the date February 24, 2022, which was the start of the invasion, as Penn was one of the first people to visit Ukraine after Russian troops moved in. Pointing to the plaque, Penn said there were three sources of pride for him in the world. “The place where my daughter was born, the place where my son was born and this. Thank you,” he said. Image: Getty Images

News

I’m considering an interest-only home loan. What do I need to know?

An <a href="https://moneysmart.gov.au/home-loans/interest-only-home-loans" target="_blank" rel="noopener">interest-only home loan</a>, as the name suggests, is where you only pay the interest on a loan and not the principal (the original amount you borrowed). While authorities such as the Reserve Bank often <a href="https://www.rba.gov.au/speeches/2018/sp-ag-2018-04-24.html" target="_blank" rel="noopener">see</a> them as risky, interest-only loans can be helpful in some circumstances. If you’re considering an interest-only loan, here’s what you need to know. How long do they go for? These loans are typically last for five years at most, before reverting back to principal and interest (where you have to pay back, through regular payments, both interest and the initial sum you borrowed). You could potentially apply for another interest-only loan after your first one winds up, perhaps by refinancing (where you take a new mortgage to repay an existing loan). But you might not get it – and you’d still have to pay off the principal eventually. <figure class="align-center zoomable"><a href="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" alt="" /></a><figcaption>Interest-only loans can cost you a lot more in interest over time than a regular principal and interest loan. Photo by Andrew Mead on Unsplash, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noopener">CC BY</a></figcaption></figure> What are the upsides of an interest-only loan? An interest-only loan means you’ll have more cash available to cover other costs, or invest elsewhere. You can use a <a href="https://moneysmart.gov.au/home-loans/mortgage-calculator" target="_blank" rel="noopener">mortgage calculator</a> to work out how much extra cash you’d have if you switched from a principal and interest loan to an interest-only loan. It’s typically hundreds of dollars per week. This may get you a bit more wriggle room for daily expenses. Or, some people use the extra cash to invest in other things – such as shares – in the hope they can make more money overall and pick up some tax benefits along the way. That’s why interest-only loans are often popular among <a href="https://moneysmart.gov.au/home-loans/interest-only-home-loans" target="_blank" rel="noopener">investors</a>. Of course, this strategy comes with risk. An interest-only loan may also have a redraw facility, allowing you to add extra payments into the loan (above and beyond the interest) if you want, and withdraw money later when you need cash. This can allow people to avoid a personal loan, which usually has a much higher interest rate. Regular principal and interest loans may also have a redraw facility but the regular payments of principal are unavailable for redraw. That means less flexibility for the borrower. <figure class="align-center zoomable"><a href="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" alt="" /></a><figcaption>What’s right for one borrower won’t be for the next. Image by Pfüderi from Pixabay, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noopener">CC BY</a></figcaption></figure> What are the downsides? The interest rates on interest-only loans are generally higher than principal and interest loans. For example, the RBA July 2022 <a href="https://www.rba.gov.au/statistics/tables/xls/f05hist.xls" target="_blank" rel="noopener">indicator rate</a> for owner-occupier interest-only rates is 6.31%. But the equivalent variable rate for principal and interest loans is 5.77% (the indicator rate is just a guide; the actual difference varies from bank to bank). Interest-only loans can cost you a lot more over time than a regular principal and interest loan. This means a borrower needs to manage their finances well to ensure they can cover the interest payments now and still have enough to pay down the principal eventually. So you’ll need a plan for how you’re going to do that when the interest-only loan ends. There is also a risk of a shock – such as job loss, personal crisis or housing crash – causing the borrower to default on the loan altogether. If the borrower defaults on an interest-only loan, they may lose the house and the bank is left with a debt that was not substantially repaid (because the borrower had not yet made a dent in the principal). It’s a lose-lose situation. Are interest-only loans common? Interest-only loans represent <a href="https://www.apra.gov.au/news-and-publications/apra-releases-quarterly-authorised-deposit-taking-institution-statistics-11" target="_blank" rel="noopener">11.3% of all home loans</a> in Australia. This figure has been <a href="https://www.rba.gov.au/publications/fsr/2017/apr/box-b.html" target="_blank" rel="noopener">trending down</a> over the past five years, due in part to tighter <a href="https://www.apra.gov.au/news-and-publications/apra-to-remove-interest-only-benchmark-for-residential-mortgage-lending" target="_blank" rel="noopener">lending restrictions</a> and the fact low interest rates have made principal and interest loans relatively cheap recently. <figure class="align-center zoomable"><a href="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" alt="" /></a><figcaption>Interest-only loans represent 11.3% of all home loans in Australia. Image by sandid from Pixabay, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noopener">CC BY</a></figcaption></figure> What does the research say? One Dutch <a href="https://link.springer.com/article/10.1007/s11146-013-9453-9" target="_blank" rel="noopener">study</a> found “households that are more risk-averse and less literate are significantly less likely to choose an interest-only mortgage”. This partly due to lower initial repayments and wealthy households preferring the financial flexibility. Interest-only borrowing has also been found to <a href="https://www.sciencedirect.com/journal/journal-of-housing-economics" target="_blank" rel="noopener">fuel</a> <a href="https://doi.org/10.1016/j.regsciurbeco.2018.06.004" target="_blank" rel="noopener">housing</a> <a href="https://www.sciencedirect.com/science/article/pii/S1094202520300776?via%3Dihub" target="_blank" rel="noopener">speculation</a> and reduce housing affordability. A US study found borrowers also tend to <a href="https://doi.org/10.1093/rof/rfy016" target="_blank" rel="noopener">default</a> more. A Danish <a href="https://doi.org/10.1162/rest_a_01146" target="_blank" rel="noopener">study</a> found that once the interest-only lower repayment period is over and the loan reverts to principal and interest, those who didn’t make principal repayments suffered a large drop in disposable income. Financial flexibility comes with a catch With rates rising, interest-only loans may sound like an appealing way to have more cash available to cover other costs in life. But just remember financial flexibility comes with a catch. An interest-only loan could be more expensive in the long run. For some people, that cost will be worth it if it allows them to hold onto the house during a brief tough period or make more money investing elsewhere. But it’s a risk. And when the interest-only loan ends, you’re still stuck with the task of paying off the money you borrowed from the bank in the first place (with interest).<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/188817/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/adrian-lee-94688" target="_blank" rel="noopener">Adrian Lee</a>, Associate Professor in Property and Real Estate, <a href="https://theconversation.com/institutions/deakin-university-757" target="_blank" rel="noopener">Deakin University</a> This article is republished from <a href="https://theconversation.com" target="_blank" rel="noopener">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/im-considering-an-interest-only-home-loan-what-do-i-need-to-know-188817" target="_blank" rel="noopener">original article</a>. Image: Getty Images

Money & Banking

“Totally shocked” woman refused home loan due to maternity leave plans

A New Zealand woman <a rel="noopener" href="https://www.nzherald.co.nz/business/new-lending-rules-mum-shocked-by-90-day-maternity-leave-mortgage-condition/R3N4QF37MLMV44LUOPGV2VC6JA/" target="_blank">has been told</a> by ANZ that she would only be considered for a mortgage if she returned to work within 90 days of giving birth. The woman is one of several people who spoke to the Otago Daily Times following the introduction of changes to New Zealand’s Credit Contracts and Consumer Finance Act (CCCFA). Changes to the act were intended to protect borrowers from loan sharks, but have prompted banks to vet mortgage applicants’ spending habits and personal finances more closely instead. The woman, who the publication agreed not to name, said she felt “totally shocked and completely discriminated against” by ANZ, after she was informed through her mortgage broker that the bank had changed its policy on maternity leave for borrowers. An ANZ spokeswoman acknowledged that the bank was enforcing stricter rules for customers taking more than 90 days of maternity leave as a result of changes to the CCCFA. She said there had been no change to the bank’s policy. However the woman, who was in the later stages of pregnancy when she and her partner attempted to refinance their home, found that her plans for maternity leave affected their chances of securing their loan. After a family member who had helped the couple finance their home to start with passed away, the couple were looking to get a mortgage through a bank with the help of a mortgage broker. The woman planned to take 12 months off of work from early December, including nine months of paid leave - three by her employer and six by the government’s paid parental leave scheme. She said she wanted to take a full year of leave after taking just seven months off following the birth of her last child, giving her more time to spend with the newborn. “It’s a really special time and I wanted to be there for it,” she said. When they applied for a mortgage through ANZ, they received a series of questions about their financial situation, as well as questions about her plans to return to work. Though she expected questions about their finances, “which I totally understood”, the woman said asking about her plans after her maternity leave was “deeply personal”. “The decisions I choose to make after that time should be mine and not dependent on the bank,” she said. On January 7, the mortgage broker forwarded an email from ANZ saying the bank had changed its maternity leave policy - now refusing to give mortgages to customers who took more than three months off work. The woman said she believed the couple could still afford the mortgage whether she was working or not. “I mean, we knew we could afford it - and if we didn’t, we wouldn’t have applied,” she said. Though she was confident she would return to work, she didn’t believe the bank had the right to tell new mothers when they go back. “It’s completely discriminatory and just not needed,” she said. The couple, who now have a three-week-old baby, are now looking to other banks for a loan. Image: Getty Images

Real Estate

10 reasons to think twice before lending money

While no one ever wants to say, “no” to a friend or family member in need, it’s important to make sure you are lending your money for the right reasons. We’re going to look at 10 reasons you should think twice before lending money to friends or family. By considering these different factors you could not only save yourself a great deal of money, but something ultimately more important, your relationship. 1. Personal loans can be vague The informal nature of personal loans can lead to inconsistencies in expectations regarding repayment obligations, which can ultimately lead to conflict. 2. Loan may not be prioritised An informal loan doesn’t have the fear factor associated with other types of loans, which could make the person borrowing money more inclined to skip repayments. 3. Chasing the borrower can be awkward Because this person is close to up, the act of chasing up late repayments can become quite awkward and lead to communication breakdowns that damage relationships. 4. Make events and social gatherings awkward You never want to feel as though your presence at a social event is making other people feel awkward, but money can make people do strange things. 5. Changes the relationship Even if you’re taking care to make sure all repayments are being met, there’s just something about going into debt to a family member that changes the relationship. 6. The borrower may ask for more Once you’ve already lent the first sum, there’s no stopping them from asking for more, and more to the point where you’ve given more than you can afford to do so. 7. You’re enabling, not helping Consider this – when you lend to a friend or family member you’re giving them an easy way out, rather than helping them find an alternative solution to their problems. 8. These type of loans don’t earn interest Loaning to friends and family ultimately costs you money and unless you’re going through the complex mechanism of charging interest there’s little in it for you. 9. You might need the money yourself While you might be in a position to lend money now, who knows what’s just around the corner? Not receiving repayments can spell financial disaster for your family. 10. You could lose money and a relationship Ultimately not getting your money back is a disaster, but what’s even worse is the possibility that you may also lose someone who’s very close to you due to tension. Have you ever lent money to a friend or family member? If so, how did you feel it went? Do you think it was successful, or did you regret the move? Let us know in the comment section. Related links: <a href="http://www.oversixty.co.nz/finance/money-banking/2016/05/woman-lasts-a-year-without-money/">Woman lasts a year without money</a> <a href="/finance/money-banking/2016/06/10-foods-you-must-stop-buying-at-the-supermarket/">10 foods you must stop buying at the supermarket</a> <a href="/finance/money-banking/2016/05/10-clever-ways-reduce-bills-in-cooler-months/">10 clever ways reduce bills in cooler months</a>

Money & Banking

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Forcing people to repay welfare ‘loans’ traps them in a poverty cycle – where is the policy debate about that?

“When you win, bring it back to Malibu”: Sean Penn loans Oscar to Ukraine

I’m considering an interest-only home loan. What do I need to know?

“Totally shocked” woman refused home loan due to maternity leave plans

10 reasons to think twice before lending money

News

Shop

Catalogues

Travel

Health

Lifestyle

Finance

Entertainment

Property

Information

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Forcing people to repay welfare ‘loans’ traps them in a poverty cycle – where is the policy debate about that?

“When you win, bring it back to Malibu”: Sean Penn loans Oscar to Ukraine

I’m considering an interest-only home loan. What do I need to know?

“Totally shocked” woman refused home loan due to maternity leave plans

10 reasons to think twice before lending money

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