Cantabrians ride out shaky times

21:58, Oct 05 2011

Has it really been a year?

The first shake in September may not have shaken people's finances dramatically, but February's big bopper certainly did.

In the period directly after the February quake it was all about dealing with day-to-day financial issues. How am I going to get access to cash? Where can I sleep? Am I still going to get paid?

The Government, through emergency Civil Defence grants and Work and Income payments, stepped into the breach, providing money immediately to those who needed it.

And banks did, too, recognising it was not business as usual for Christchurch's residents, offering debt repayment holidays alongside rapid loans and increased credit card limits.

To cite just one bank's experience, BNZ saw more than 1000 hardship loans taken directly as a result of the seismic activity and a further 1421 temporary overdrafts, with a dollar value of $8.9 million and a 4.5 per cent interest rate, were approved for its retail customers from September 2010 until August this year.

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The Red Cross has handed out an astonishing $50.4m to 63,350 quake-affected people since September through 10 different grants. This includes a $10,000 bereavement grant for those who lost an immediate family member, and further giving is on the cards with $20m still in the pot to be distributed.

But as the months have passed, the initial panic for cash has subsided, leaving in its place for some a grinding worry about their financial situation and others pondering that age-old question; should I stay or should I go?

The severe financial setback that hit the city, as a whole, has surprisingly not translated into an increase in personal insolvencies.

Figures from the Insolvency and Trustee Service  itself based in the Garden City  show that from September last year to the end of August this year 259 locals were adjudged bankrupt, down from 357 for the same period in 2009 to 2010.

The majority of the 259 fell on their swords, lodging their own petitions to be made bankrupt. 

A further 301 people took advantage of the No Asset Procedure (NAP) scheme in Christchurch.

The scheme is available to people with debts of less than $40,000 who have no means of repaying the debt.

If accepted to the scheme, debts are frozen then discharged, usually after 12 months.

And the High Court in Christchurch rubber-stamped 18 Summary Instalment Orders, a court-sanctioned debt repayment plan, for the same period.

Insolvency and Trustee Service manager Robyn Cox can not  explain the decline in bankruptcies but cheerfully remarks that ''it must be a good thing, mustn't it?''

Her only guess is that in 2009 and earlier we were seeing victims of the global financial crisis washing out their dirty finances, which boosted the numbers and they are now settling down again.

For those who have declared bankruptcy, taken a NAP or are adhering to a court-enforceable payment plan, a formal process is now in place for dealing with out of control debt.

But for most, the stress remains of meeting mortgage repayments, the credit card still needs to be paid, and interest continues to accrue on personal loans.

Banks created quake assistance packages pretty rapidly after February with most putting mortgage and loan repayment holidays on the table.

A few banks including ASB attempted to steer customers away from an interest-burgeoning break towards reduced interest rates instead.

ASB's Catherine McGrath says ''in round figures'' the bank has converted about $280m of borrowing to special quake-reduced rates of one per cent off variable or 0.5 per cent off fixed, for one year.

''This includes home loans, personal loans and business rebuild packages,'' McGrath says.

She says reduced interest rates give customers a breather, rather than a rest. Because although a total holiday from repayments may sound like a good thing, it actually increases the amount you owe.

This is not to say none of ASB's customers have taken a mortgage holiday, but McGrath says the numbers are ''very small'', compared with the uptake of reduced interest rates which is a good thing, she says.

''We would much rather see customers get the benefit of a lower rate.''

ANZ National Bank says it has now moved away from short-term mechanisms such as mortgage repayment holidays towards longer-term solutions.

The bank says it has committed $1 billion in new residential mortgage lending at a rate 2.04 per cent below its current variable rate  of 5.74 per cent  to its Christchurch customers, which, it says, represents potential interest savings of up to $20.4m.

Another potential source of income for cash-strapped Cantabrians has been Kiwisaver.

The retirement schemes have provisions for people to pull out their contributions if they are facing severe financial hardship. 

While many of the big schemes have seen more people withdrawing money in the past year, it's difficult to get a gauge on how many of the withdrawals have been for financial hardship, let alone for hardship directly related to the quake. Quite simply, the Kiwisaver providers won't say.

Westpac, however, did volunteer some statistics. The bank has seen 728 hardship withdrawals with a value of $1.38m for the year ended March 2010 from its Kiwisaver scheme.

For the financial year ended March 2011, this number has more than doubled to $3.35m  but the bank says only a ''small number'' are quake-related.

So what is happening now that we are more than six months out from the February shake, and a year has passed since we discovered Christchurch was, in fact, earthquake prone?

BNZ's Chris Gourley says the financial holding pattern many Christchurch residents were in from February is now being broken.

''We are now seeing a progression, we are seeing an influx of people looking for bridging finance and people wanting to get into new properties.''

He says there is a feeling of urgency on the ground in the city even though the ground is still moving.

''They want help to move on and move forward. People are asking us what can they afford [to borrow], and our inquiry levels are through the roof.''

McGrath agrees. She says ASB's Christchurch teams are spending a lot of time with customers working through their options. Budgeting is key, she says.

Financial advisor Sheryl Sutherland says people who have already got $100,000 from the Earthquake Commission would be well advised to put it in a term deposit, and many already have, which has been noticed by the banks.

Gourley says plenty of Christchurch residents are asking their bankers, ''what should I do next?'' ''We don't give financial advice,'' he says, ''and it's really difficult.''

Most red zoners are struggling to decide whether to take the Government offer of the 2007 value of their property, or to deal with their insurer, Gourley says. ''We can't tell them what to do, but we can ask them questions.''

The biggest question is do you want to get out, or do you want to get on?

But there is a huge handbrake on any tangible progress for those who want to stay and buy or rebuild.  Insurance. Or the lack of it, to be specific.

As has been well covered in the media, insurers are loathe to jump in alongside eager property buyers and insure Christchurch properties against further shakes.

''This is the big issue,'' McGrath says, ''and I'm not sure it's one that banks can help with.''

She says she can understand why insurers would not be happy to start covering new builds when the ground is still moving but the people in Christchurch need to be able to get on.

And Gourley says those who are committed to Christchurch want to buy houses and land, but they do not feel they can and there is the additional pressure of a property market that is moving quickly.

''People may know what payout they are getting, but they don't know what it means in real terms  'how much is my payout going to buy me?''' he says.

Each of these decisions needs to be made on a case-by-case basis, Gourley says.

Sutherland is advising her clients to invest their money in offshore equities in the meantime.

''And people need to utilise Kiwisaver. Get into it, and ensure you get the best out of it.

''They are just vanilla funds  they're not going to set the world on fire  but they are a good little base fund."

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