Bad Credit Loans, Bad Credit Home Loans – Bad Credit Finance Australia

The rate of defaults and arrears on Australian mortgages stabilised last quarter, according to new research.

Based on Moody’s Investors Service, clean credit home loan defaults greater than 30 days remain steady at 1.39 per cent, compared to 1.34 per cent in Q1 2010.

Non-conforming mortgage defaults and arrears over 30 days grew a little to 13.74 per cent in June from 13.02 per cent in March.

“Borrowers in outer south-western Sydney and Fairfield-Liverpool are experiencing greater mortgage stress as compared to other regions. These two regions feature the highest proportion of home loan arrears and defaults, with 2.5 per cent to 3 per cent of mortgages falling into arrears of 30 plus days past due,” Moody’s senior analyst for the structured finance group Arthur Karabatsos said.

“If interest rates hold, there is no reason to expect great pressure on mortgage arrears. If they were to increase beyond these ‘neutral’ levels — that is, neither stimulating nor constraining the economy — delinquencies may rise, although we don’t expect to witness the 1.63 per cent seen in January 2009.

Pepper Home Loans has announced a drop in the interest rates on both its Flexi Advantage and Self-Employed Advantage products.

The non-bank lender has slashed up to 25 basis points off its Flexi Advantage product, taking it to just 8.49 per cent on mortgages with a loan to value ratio of up to 70 per cent.

Up to 50 basis points were reduced off the Self-Employed Advantage Home Loan, taking the interest rate to 8.74 per cent on loans with an LVR up to 70 per cent.

Pepper has also made a number of product policy changes to introduce more loan flexibility to the borrower.

As part of the policy changes, second jobs and casual employment will now be seen as an acceptable income.

Furthermore these mortgages will now be available up to $1 million for loans with an LVR up to 80 per cent.

AUSTRALIA’S demand for credit continues to outstrip supply and as a result Australian banks will need to borrow as much as $140 billion from local and offshore markets over the next year.

The big four banks have already gone out to look for more money to address their funding needs in 2011.

The enormous funding exercise will put Australian banks in competition with other banks and governments around the world which are seeking to raise trillions of dollars from bond markets.

Global demand for funds, particularly the longer-term debt which is sought by banks, will keep banks under pressure to raise interest rates until at least the middle of next year. Of the local lenders, Commonwealth Bank has the biggest requirement, some $50 billion over financial 2011. Westpac is aiming for about $40 billion, while ANZ and National Australia Bank are each planning to raise between $20 billion and $25 billion.

The banks have acknowledged that their reliance on wholesale funds, which generate a little under half their funding needs, is a long-term structural issue for Australia. There is also significant emphasis on capturing the depositor market to make up the funding shortfall.

‘The competition for international long-term debt is tough and that will keep borrowing costs rather high.

Despite the size of the funding requirement, Westpac’s chief financial officer, Phil Coffey, said markets would remain open for Australian banks.

”We expect to continue to continue to access wholesale term markets for the foreseeable future, and as you’d expect, we’re highly tuned to funding markets. We’ll tap markets or sit back depending on prevailing conditions,” he said.

Indeed, Westpac rushed funding markets in early 2010, raising nearly $18 billion in just three months, allowing it to sit on its hands as European’s economic problems sent prices soaring in debt markets.

ANZ is hoping find as much as $25 billion in wholesale borrowing overseas for the 2011 year. ANZ has been able to supplement its funding by attracting deposits from its recently acquired Royal Bank of Scotland bank branches across Asia.

Aussie borrowers have taken on $86.3 billion more debt in the past year, but current research reveals Australians are attempting to gain some control of their debts by using savings to pay down credit cards and personal loans as well as mortgages.

People would rather pay out current debts before putting any savings together. This certainly makes sense.

According to data provided by the RBA, Australian consumers have paid out $20.5 billion off their credit card balances in June 2010.

The ING Direct index found 48 per cent of homeowners making extra repayments on their mortgage, and 3 per cent struggling to meet repayments.

Currently Australia’s median mortgage balance is $175,509, down from $177,259 in the first three months of 2010. The median card debt per Australian household has gone down from $1802 to $1673.

Half (53 per cent) of households have less than $17,000 in savings and 17 per cent have no savings at all. The cash squeeze isn’t limited to low-income households, with 11 per cent of households earning $100,000 or more annually having no personal savings.

Clearly people have realized that they need to be careful with taking on debt which they are not able to service and have commenced to slowly pay out existing debts from savings.

Borrowers who have excessive non tax-deductible debts, such as credit cards or a home mortgage, should pay them off as soon as possible.

Borrowers with a large amount of debt should review available methods of debt reduction including consolidating various unsecured debts with a higher rate of interest into their mortgage.

According to a recent survey of over 1000 loan applicants conducted by Mortgage Choice, over 66% of people who refinanced their mortgages recently were able to secure a lower interest rate and a better loan.

The survey also found that 54 per cent who refinanced changed their loan product and lender when refinancing, while 46 per cent stuck with the same lender but changed their mortgage.

Of those, 23 per cent were now saving more than $300 a month, while 88 per cent were saving more than $50 a month.

These figures are not surprising given a spate of interest rate increases in recent month – people are doing what they can to save money on their home loan.

From October 2009 to May 2010, the Reserve Bank raised its cash rate six times, taking the rate from 3.25 per cent to 4.5 per cent.

While most economists agree that the RBA is unlikely to move on rates in the next few months, many are predicting a rate rise by the end of the year or early next year.

“With a recent spate of rate rises and the possibility of more before 2011, plus a renewed focus on mortgage exit fees, it is no surprise Australians are refinancing to a cheaper mortgage deal and/or one that better suits their current needs and goals,” Ms Sheppard said.

“In good news for borrowers, the survey revealed that most of the people who refinanced their mortgage were not burdened with loan exit fees.

Of those surveyed, 24 per cent said they were refinancing to switch to a cheaper loan, through a combination of lower interest rates, fees and charges.

Eleven per cent said they refinanced to consolidate debts and 10 per cent said they were funding renovations.

Other motivations to refinance were buying an investment property (nine per cent) and accessing additional funds for other reasons such as holidays.

In a bad credit market, much of the refinance activity is due to debt consolidation and an attempt by borrowers to keep their heads above water.

“We are happy to see so many respondents keen to add value to their property through renovation and others utilising their market knowledge to invest further in their property portfolio,” Ms Sheppard said.

“This is good news for the residential market and something I am sure the construction industry will welcome.”

Ms Sheppard encourages borrowers to throroughly investigate their options before committing to a loan.

Economists believe that banks will commence a series of independent interest rate moves right after the elections.

There is no expectation of any action from the Reserve Bank until November 2010 or even later. Banks are unlikely to continue absorbing the extra costs of funding for that long.

Minutes from the RBA monthly meeting show the reserve bank is playing a ‘wait and see’ game, wary of global economic uncertainty and satisfied earlier rate rises had taken excess heat out of the economy.

AMP Capital Investors chief economist Shane Oliver said the outlook for the official cash rate meant banks would be more likely to increase interest rates independently of the RBA.

The minutes were published on Tuesday as a new survey indicated wage growth was slowing and the downward pattern is expected to continue.

The RBA minutes further confirm that the board was “comfortable” leaving the cash rate unchanged at 4.5 per cent following a drop in annual underlying inflation to 2.75 per cent.

While markets had settled “somewhat”, the board also felt there was “still more uncertainty over the global outlook”.

Economists from AMP Capital Investors and TD Securities said a rise in the base rate was now unlikely until at least November.

Citi economist Paul Brennan forecast that the RBA would lift the cash rate by about 100 basis points over the course of 2011, but said an increase was unlikely this year.

According to figures released by the Commonwealth Bank, in a sign that financial pressures have somewhat eased for many borrowers, the number of account holders whose loan problems are being closely monitored by the CBA has almost fallen by 50% over the past 12 months.

Figures released by the bank as part of its record $6.1 billion profit announcement demonstrate that far fewer customers are still experiencing problems with mortgages and personal loans as compared to October 2009.

Certainly late last year the fallout from the GFC was having its biggest effect on the Australian economy. There was the threat of rates going higher and higher and at the same time as the Reserve Bank moved to battle inflation.

CBA had put on a large number of people during 2008 to manage problem loans and customers with mounting debts.

By June 2009, 9325 account holders had sought assistance from the bank for their home and personal loans and outstanding credit card bills. Mortgages took up an increasing share of the referrals during the remainder of the year. The total number of customers requiring help with their loans went up to 13,299 in October before starting a slow but steady drop from January.

That figure has since decreased to 5132 customers with credit card problems, which has remained at a relatively constant level for the past six months, now drowning out the smaller numbers of borrowers with problem home loans and personal loans.

The figures are a useful guide to the wider affect across the community of mortgage stress given that the Commonwealth Bank is the largest lender in the Australian housing market. They also underline just how much customers have been focusing on reducing their levels of debt.  Current statistics indicate that 70 per cent of CBA funded home-loan borrowers were well ahead on their monthly repayments. The average figure among them is nine payments.

Nonetheless, like its competitors, the CBA has introduced more stringent lending criteria since the first-time home buyer boom of last year that was underpinned by government cash handouts to prevent the housing market slipping into recession.

Loans gone bad issues to property developers in Queensland have plagued the CBA’s recently acquired Bankwest arm.

According to recent review conducted by the CBA , Bankwest had been lending pre-2008 on “inflated credit ratings” and “unrealistic security valuations”.

This has contributed to  a 65 per cent increase in bad loan charges at Bankwest. That expense reached $754 million – “mainly due to property-related exposures, primarily in Queensland and New South Wales”.

CBA acquired Bankwest from UK lender HBOS, which itself was merging with Lloyds TSB, for $2 billion during the height of the credit crunch.

Since the CBA acquisition of Bankwest the bank has been far more prudent in it’s lending decisions.

Drilled by analysts about why these problems were not discovered in due diligence, CBA chief executive Ralph Norris argued the problem was recently uncovered.

These loans had performed well during the takeover process, he said.

But he said some loans in the first quarter of calendar 2010 had become impaired without first going to a watchlist – which banks use to highlight problematic loans before they are notched as impaired. That initiated the broader review of bank lending uncovering problems with loans, whose average value was $8 million.

According to the latest research by Ratecity, Aussie household are holding $86.3 billion more debt this year than in 2009. While much of this debt is unsecured and therefore is not reflected in home loan commitment figures recently reported, credit cards and personal loan debt is higher than ever.

In an analysis of data from the Australian Prudential Regulatory Authority (APRA), RateCity found that households borrowed $771.3 billion in June – 12.6 per cent more than in the previous year $685 billion. This includes personal loans, credit cards, and owner occupied home loans.

The risk of over-borrowing is something that is greater today than this time last year. This is despite the interest rates being put up a number of times by the RBA over the past 12 months.