Mortgage Hardship Australia — What to Do When You're Struggling

If you are struggling to meet your mortgage repayments, you have enforceable legal rights under Australian law, and lenders have specific obligations to help you. The most important thing to do is act early — the longer repayment difficulties go unaddressed, the fewer options become available.

Your Legal Rights Under the NCCP Act

Under the National Consumer Credit Protection Act 2009 (NCCP Act), if you are experiencing financial hardship — due to illness, job loss, relationship breakdown, or other unforeseen circumstances — you have the right to request a financial hardship variation from your lender.

Your lender must:

• Acknowledge your hardship application in writing within 21 days
• Genuinely assess your request and respond with a decision
• Not take enforcement action (such as commencing repossession proceedings) while your hardship application is being considered, unless the lender has reasonable grounds to believe the application is not genuine

This is a legal right, not a discretionary favour. Even if your lender’s initial response is unhelpful, you can escalate to AFCA (Australian Financial Complaints Authority) for free, independent resolution.

What a Hardship Variation Can Include

When a lender agrees to a hardship variation, the terms can include:

• Repayment pause (mortgage holiday): a temporary pause on principal and interest repayments, typically for 1–6 months. Interest continues to accrue and is added to the loan balance.
• Reduced repayments: temporarily switching to interest-only repayments, or a reduced payment amount
• Loan term extension: spreading the remaining balance over a longer period to reduce the monthly repayment
• Capitalising arrears: adding missed payments to the loan balance (which increases total interest paid but stops the arrears from growing)
• Temporary fixed rate: locking in a rate to provide repayment certainty

A hardship arrangement is not forgiveness of the debt — it restructures the timing and pace of repayment. The loan balance may increase during a pause or reduced-payment period.

Mortgage Stress in Australia

Mortgage stress is broadly defined as spending more than 30% of gross household income on housing repayments. At current variable mortgage rates of 5.5–7.0%, a significant portion of Australian homeowners with mortgages originated during the low-rate period (2020–2022) are experiencing higher repayments than they planned for.

Key triggers for mortgage stress include:

• Rate rises — the RBA’s cash rate increased from 0.10% to 4.35% between May 2022 and November 2023
• Job loss or reduced work hours
• Relationship breakdown — one income replacing two
• Medical expenses or extended sick leave
• Maternity or parental leave with reduced income

Mortgage stress does not automatically mean you cannot manage — but it is a signal to review your budget, contact your lender early, and explore your options proactively.

What Happens If You Miss a Payment?

A single missed repayment typically triggers an arrears notice from your lender. After 90 days in arrears, your loan is generally classified as non-performing, and the lender can issue a default notice under the NCCP Act. A default notice gives you a minimum of 30 days to remedy the arrears before enforcement action can commence.

Enforcement action (repossession proceedings) requires the lender to obtain a court order. The process takes months and courts have discretion to adjourn proceedings to allow the borrower to resolve the arrears, refinance, or sell voluntarily. Forced sale under repossession is a last resort — both for lenders and for the legal system.

Free Help Available

Financial counsellors can help you understand your options, communicate with your lender, and develop a realistic plan — at no cost to you.

Frequently Asked Questions

What should I do first if I can’t pay my mortgage? Contact your lender immediately to request a hardship variation. Do not wait until you have missed payments. Lenders have a legal obligation to consider genuine hardship applications, and acting early preserves the most options. If you are unsure how to approach your lender, call the National Debt Helpline (1800 007 007) first.

Will a mortgage hardship arrangement affect my credit score? A hardship arrangement itself — where the lender formally agrees to modified terms — should not be listed as a default on your credit file under the NCCP Act. However, missed payments before a hardship arrangement is formalised may be reported. Ask your lender explicitly about credit reporting before agreeing to any arrangement.

Can I pause my mortgage repayments in Australia? Yes, under a formal hardship variation, lenders can offer a repayment pause (sometimes called a mortgage holiday) of typically 1–6 months. Interest continues to accrue during the pause and is capitalised onto the loan. Some lenders also offer pauses for customers in good standing who want to manage short-term cash flow.

What is the difference between repossession and a voluntary sale? If a lender commences repossession proceedings, the property may be sold by the lender (mortgagee in possession). A voluntary sale — where you sell the property yourself — typically achieves a better price and gives you more control over timing. If you cannot resolve arrears and need to sell, acting before repossession proceedings are commenced usually produces a better outcome.

This section provides general information about mortgage hardship in Australia. If you are in financial difficulty, contact the National Debt Helpline on 1800 007 007 — free and confidential financial counselling is available. For mortgage advice, find a licensed broker through MoneySmart.