More than one-in-three struggling home owners are giving up applying for financial help because lenders make the process too hard, the corporate watchdog says.
A scathing report from the Australian Securities and Investments Commission says bank and non-bank lenders are failing struggling customers.
The number of hardship notices submitted by customers jumped by more than half (54 per cent) in the last quarter of 2023, year-on-year.
"In the worst cases, lenders ignored hardship notices, effectively abandoning customers who needed their support," ASIC chair Arthur Longo said.
The report found 35 per cent of borrowers had dropped out of hardship application processes at least once.
Consumer Action Law Centre chief executive Stephanie Tonkin said the report echoed a growing number of callers to the organisation's help line.
"Every day our financial counsellors on the National Debt Helpline are speaking to people experiencing financial hardship and scared about losing their homes," Ms Tonkin said.
"We have been telling lenders for over a year now that their customers are still receiving inconsistent and inadequate financial hardship responses when they seek help."
Australia's financial complaints chief ombudsman David Locke said the report aligned with data from the Australian Financial Complaints Authority, which recorded a 25 per cent increase in complaints involving financial difficulty in 2023.
"We are concerned about rising complaints involving financial difficulty and barriers in receiving hardship assistance," Mr Locke said.
In some cases, borrowers on payment plans received default notices from lenders or faced debt recovery action while their complaint was still before the authority, which is not permitted.
According to Roy Morgan research, an estimated 1.35 million home-loan holders, more than one-in-four nationally, were at risk of mortgage stress in the previous quarter.
Mortgage stress for owner-occupiers has been rising since the Reserve Bank began hiking interest rates in May 2022 and is at its highest level since the global financial crisis.
"Too many Australians in financial hardship are finding it hard to get help from their lenders and it's time for meaningful improvement," Mr Longo said.
The ASIC report took data from 30 lenders and closely reviewed 10 of the biggest ones along with 80 case studies.
The leading reasons behind customer hardship notices were over-commitment, followed by reduced income, medical reasons, unemployment and separation.
The report found two-in-five customers who secured support fell into arrears at the end of the assistance period.
ASIC commissioner Alan Kirkland said financial hardship programs were failing to meet borrower needs and the regulator was concerned over a lack of adequate arrangements for vulnerable Australians, including those facing domestic or family violence.
"We encourage people worried about making repayments to contact their lender and if not happy with the response, to lodge a complaint with them," Mr Krikland said.
Seven of the big lenders reviewed in the report have launched programs to improve hardship management and all 10 will be asked to prepare an action plan in response.
