According to the latest arrears report from Standard & Poor’s, home loans underlying Australian prime residential mortgage-backed securities (RMBS) that are greater than 30 days in arrears fell to 1.69 per cent in June 2011 from 1.81 per cent in March.

The decline in the levels of home loan arrears indicate signs of recovery.

Ms Chaplin said she expects arrears to fall even further over the coming quarter as the Reserve Bank’s 25 basis point rate cut begins to filter its way through to home owners.

“This was evident when the RBA cut the cash rate from 7.25 per cent to 3 per cent over seven months from September 2008 to April 2009.

Many business bankruptcies were caused by excessive and out of control bad debts.  There has been a significant surge in the number of Australian companies in administration during the third quarter,  to levels last seen during the 2008 financial crisis, according to figures released by the securities regulator today.

A new study shows that between 2001 and 2009, 20% of home owners in Australia had decided to sell up and go renting. This is double the figures in the UK.

More than 50% of these subsequently returned to the property market, buying a cheaper property with a smaller home loan, however many others went on to apply for public housing and continued to rent.

The Royal Melbourne Institute of Technology survey was based on the housing histories of thousands of Australians over nine years.

It found that former owners who did not return quickly to the property market were more likely to enter public housing or qualify for Commonwealth rent assistance than long-term renters.

It seems that the lack of housing affordability with escalating property prices and escalation costs of home loans are largely to blame for this trend.

During 2011, Australia has taken the unenviable title as the second most unaffordable housing market in the world.

Australia featured eight of the top 20 markets in which housing is ranked as being “severely unaffordable”, according to the 7th Annual Demographia International Housing Affordability.

The survey found that Sydney was the world’s second most unaffordable city, Melbourne sixth and Adelaide 18th.

The remaining capitals all feature in the top 50 with median house prices more than six times the average salary compared to the accepted international standard of three times annual income.

Furthermore Australia has suffered from a very high increase in mortgage defaults in recent months.

Investment services firm Moody’s said the rate of mortgage holders nationwide failing to meet their repayments rose from 1.36 per cent to 1.67 per cent between March and June.

Meanwhile, the number of homeowners facing mortgage stress jumped to 25 per cent last month from 21 per cent in June, mortgage insurance provider Genworth Financial said in its monthly Homebuyer Confidence Index.

Rental vacancies have declined to 1.8 per cent from 1.9 per cent, it reported.

A Senate committee gave its support to the government’s draft plan to upgrade Australia’s credit reporting legislation and processes, prompting Veda adviser Matthew Strassberg to ask for a quick turnaround.

“Two years ago, the Minister for Privacy Brendan O’Connor announced a timetable to ensure passage of credit reporting reforms by mid-2012. We support that timetable,” he said said in a statement.

In view of the growing uncertainty on financial markets and the possibility of another global recession this legislation needs to be given priority.

Mr Strassberg said there were a number of gaps in today’s credit reports that have to be addressed as a matter of urgency. One such gap is the lack on info on the report as to the borrowers true credit limit on all their credit facilities and loans such a personal loans, home loans, car loans and credit cards.

Allowing credit agencies to obtain that type of information could only benefit consumers, he said, because companies would then have a clearer idea of the customer’s financial standing and their ability to pay their debts.

It was a view backed up by the Senate’s Finance and Public Administration Legislation Committee, which handed in its report on the government’s credit reporting draft today.

It would also change the regime from negative, where agencies mostly accessed bad information such as defaults, to positive.

This would offer a more comprehensive picture of the credit position of a borrower.

Despite business bankruptcies and insolvencies dropping away to their lowest levels globally, Australia recorded a 12.1 per cent increase in business failures in the June quarter — up from 4.1 per cent in the previous quarter. These figures are certainly alarming as they will have negative impact on employment opportunities, as well as debt positions of Australian families.

Australia has now joined some struggling European economies including Hungary, Ireland, Italy, Portugal and Spain, with a sharp rise in insolvency risk.

“The rise in insolvencies may have reflected knock-on, laggard effects of the 2008-09 GFC as well as drop in business loans and a generally higher cost of credit and finance.

“Outside the mining sector, sentiment is generally still poor and the strong Australian dollar is straining profits.”

Business failures among advanced economies were down 5.7 per cent in the June quarter, with even sharper falls in the US, down 10.8 per cent, and Britain, down 17 per cent.

Among the emerging economies, China recorded one of the highest falls in insolvencies, down 27 per cent, followed by South Africa, down 18.8 per cent.

Business insolvency statistics is something that RBA should be taking on board in formulating its monetary policies and interest rate strategies moving forward.

Borrowers with a history of bad credit as a result of bankruptcy, part 9 debt agreement, property repossession, etc. – ie borrowers who acknowledge that the bad credit was due to some even in their life and the report truly reflects this – will not be able to clean their credit history simply by making a request to do so.

Credit repair is only possible where for some reason the applicant believes that the bad credit is:

- a case of mistaken identity;

- the bill was already paid at the time that the default was lodged and it was lodged in error;

- applicant was never notified that the bill was due, etc.

Credit repair is not an option where you acknowledge the debt and believe that it was placed on the report correctly but would simply like to have the default removed.

People are almost offended when we com back with an explanation that due to their credit default they will need to have a deposit of at least 10% and in some cases even 20%. We get to hear…”what..$80,000 deposit…this will never happen. Well the deposit requirements are simply the lender’s way of insuring their loan against mortgage arrears or defaults. The lender must be secure in the knowledge that if you default again they have sufficient equity in your home to sell it and cover their costs. Is it really so unreasonable? We think not.

No it is not possible to consolidate your debts into a home loan if you are relying on the first home owner grant for your deposit. The days of the grant being sufficient as a deposit are long gone. How can any responsible lender offer you a loan of $400,000 to buy your home and another $30,000 on top to consolidate your debts if all the home you are buying is worth is $400,000? If you have paid defaults on your credit report and you wish to purchase a home for $400,000, you can count at best on a loan of $360,000 and possibly only $320,000 – the difference needs to come from you.

Under the recently introduced National Credit Code all lenders must hold a credit license as do all brokers. It would constitute irresponsible lending in the eyes of ASIC is someone offered you a home loan without a deposit when your credit history is far from clean.

Protect your credit history and then you too will be able to qualify for the cheap home loans offered by mainstream lenders with low deposits. Bad Credit Home Loans by their nature are more expensive and do require  deposit.

New data from Standard & Poor’s found home loans underlying Australian prime residential mortgage-backed securities that are greater-than-30 days in arrears eased to 1.80 per cent in May 2011, from 1.83 per cent a month earlier.

The mortgage arrears levels seem to have stabilized, with only marginal movements between May and April,” Standard & Poor’s credit analyst Vera Chaplin said.

A significant improvement in mortgage arrears may not occur until we see an overall improvement in the economic conditions in Australia.

Home loans held by the self employed on a low doc basis continue to be the most affected by financial pressures. Although the Low Doc Home Loan SPIN has dropped to 5.79 per cent from 5.88 per cent during the same period.

Australian Securities and Investments Commission insolvency figures, released yesterday show 9829 companies entered external administration in the 2010-11 financial year, the highest figure since the peak of 10,005 during the global financial crisis.

Businesses who are experiencing tough retail conditions are not finding an understanding ear with the banks, who are making it far more difficult for borrowers to qualify for loans even where the borrower has plenty of equity in their home.

The leader of ASIC’s insolvency team, Adrian Brown, said banks in an effort to  prevent client bankruptcies have gone some way to meet stable clients, in some cases allowing facilities to be rolled over without the provision of further financials.

In addition to borrowing from banks, Australian companies are exposed to US credit conditions through their heavy reliance on North America’s private placement market, the source of a third of the Australian corporate sector debt raised last year.

About $6 billion of the $21 billion in Australian corporate debt that needs to be refinanced next year is sourced from the US private placement market, with $7.2 billion coming from banks, according to research released by Moody’s in March.

While large corporates are able to issue bonds and borrow offshore, the smaller companies that make up the bulk of insolvencies depend on bank finance. The Australian government has introduced tough lending regulations which has meant that much of the low doc home loan business acceptable in the past would be declined today. It is not unusual for small business owners to resort to using the equity in their homes to finance their business debts – however today such financial solutions are more difficult to implement and are more costly than in the past.

Smaller businesses were finding it more difficult to borrow. ”For example, you continue to see not as much finance available for property development, particularly suburban-type property development, while for more blue-chip properties you’ll see there’ll be market finance available.

Ferrier Hodgson partner Morgan Kelly said small to medium businesses were having difficulty borrowing and had also been hit by changes in workplace laws, the threat of a carbon tax and the ATO’s crackdown.

He said banks were also concerned about concentrations of risk in specific areas, such as commercial property.

In theory banks want to lend money – unfortunately the people they are prepared to lend to – do not need to borrow.

According to Fitch Ratings, home owners who are 30 or more days behind on their mortgage payments will will remain at approximately 1.75 per cent for the rest of the year.

This forecast is based on recent estimates issued by the RBA that rates are likely to remain at current levels for the next few months.

In the minutes of its July meeting, the Reserve Bank warned that mortgage arrears rates had gone up among home buyers who had purchased their homes during the property price peak periods, particularly in Western Australia and Queensland.

RBA believes that home loan arrears are the fault of lenders who did not follow sufficiently strict lending guidelines.

Fitch associate director James Zanesi said higher interest rates had put home buyers in difficulty.

Of course the recent spate of natural disasters has had an unexpected financial impact on many Queensland and Victorian families.

“ While Fitch does not believe that natural disasters such as the December/January floods have been the main factor in the rise in delinquency rates in Queensland, the ratings agency cannot exclude that natural disasters might have indirectly contributed in terms of regional unemployment and increasing cost of living,” he said.