Aug 25

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.

Aug 11

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.

Aug 10
Credit card fraud and bank account fraud is rife in Australia. One of the methods used by thieves is having a skimming device fitted at the “mouth” of the ATM machine to copy the person’s card details. A micro-camera would capture the pin number as the person keys it in. The gang would have then transferred the skimmed data to a counterfeit card and the robberies were easily perpetrated remotely in many cases by thieves located overseas.Most new ATM machines in Australia have shields placed onto their key pads, or are chip and pin “capable”. That is, they use computer chips to store information rather than the more easily-cloned magnetic stripes. All Australian ATMs must be chip and pin “capable” by January 1, 2011.

While bank fraud victims are generally compensated by their bank fairly quickly, the experience is traumatic and can stay with you for some time.

All Banks, credit unions and building societies must subscribe to the Electronic Funds Transfer Code, which protects consumers who use electronic banking such as ATMs and Eftpos, or telephone and internet banking, to transfer funds. This does offer some form of protection.

The Australian Securities and Investment Commission has a detailed “Fido” page on its website, which clearly details the rights of customers – and the obligations of banks – when fraud occurs.

The ANZ Bank offers a Fraud Money-Back Guarantee which will fully re-credit a customer’s account “as long as they have not contributed to the loss and have notified the bank promptly”. The bank will reimburse claims of up to $10,000 within five business days of receiving completed documentation.

The rules and responsibilities around bank fraud perpetrated online, are far less clear. Who is responsible where Customers respond to a convincing “phishing” email,  -  is it the fault of the bank or personal negligence on the customer’s part?

Generally common sense must prevail. If you receive an email with links to your bank, PayPal or any other website that requires a login to an account, it is clearly a very high risk behavior on behalf of the customer.

Banks claim their protective technology is now more proactive than reactive. NAB claims that they can now detect 90 per cent of fraud cases “within minutes or seconds”. The big four banks use technology that throws up red flags when transactions fall outside the customer’s normal usage patterns – patterns based on geography, amount and time.

There are now also extra layers of security such as tokens which display changing numbers that must be punched in to complete an online transfer, as well as SMS alerts to inform customers of any large money movements.

There are times when the bank will question the validity of a fraud, and in these situations, things may not go so smoothly. Small says a bank has to protect itself from false “victims” and the bank has a highly trained team of fraud examiners which will question customers – politely, of course.

Jul 28

Australian annual inflation figure has come in at only 3.1 per cent, making another interest rate rise next month less likely.

The consumer price Index headline rate for the past June quarter was 0.6 per cent, but the headline rate for the past year was 3.1 per cent,  significantly under the expected rate of 3.4 per cent.

Given the CPI figures there seems to be little reason for the RBA to move on rates next week.  This is especially true given that the country is in the middle of an election campaign.

The cost of living is proving to be very significant to the outcome of the  Australian voter.

The inflation news are very positive for all home owners with a mortgage.

It now looks more likely that RBA will not lift rates until the end of 2010. Of course this will not necessarily prevent other lenders from lifting rates independently of the RBA.

“Certainly home buyers will be happy, politicians will heave a sigh of relief they won’t have to focus on interest rates in this election campaign.

“The government’s probably got more reason to cheer than the Opposition, but that’s the way things go.”

The lower than expected CPI is not such a surprise given the difficult trading conditions being experienced by most retailers.

One of the largest contributors to the headline CPI figure was a 5.9 per cent rise in tobacco and alcohol prices, for an annual rise of 8.7 per cent.

This was the result of the Federal Government’s 25 per cent tobacco excise, introduced earlier in the year, Mr James said.

JP Morgan economist Helen Kevans said both headline and core inflation came in below expectations, “so that’s definitely reducing the chance of an RBA rate hike next week”.

The median market forecast was for the headline CPI to have risen by 1 per cent in the June quarter.

The Australian Bureau of Statistics data shows the CPI rose 3.1 per cent through the year to the June quarter.

The biggest price rises in the quarter were for tobacco, surging 15.4 per cent, hospital and medical services, rising 3.8 per cent, and automotive fuel, up 2.1 per cent.

Jun 29

The Premier of Tasmania has come out with an offer of $2 million in no-interest loans to help Tasmanians suffering from financial stress.

NILS Tasmania will manage a $1 million fund for essential household goods and expenses and another $1 million fund to help start small businesses.

These funds are a part of a $5 million Community Development Finance Fund announced during 2009.

David Bartlett has told a budget estimates committee the loans will be extremely helpful for low income Tasmanians trying to get back ‘on their feet’.

“The research shows us that the additional support for expanded items and services under the micro-finances program will greatly assist people facing financial hardship and help raise financial literacy and reduce dependency on emergency relief,” he said.

Jun 17

This is the first time since November 2006 when households believe that their Credit Card Debt is a Greater Problem than their Mortgage Debt.

According to the survey conducted, Victorians are Australia’s best savers.

It also showed the proportion of respondents nominating holiday or travel as their motivation for saving was 55.8 per cent, up from  55.0 per cent in March.

The Melbourne Institute household financial conditions index rose 17.2 per cent to 33.7 in June, up from 28.8 in March.

Credit card debt overtook mortgage debt as the main form for households, up almost 3 per cent, to 36.6 per cent.
The proportion of Australians saving grew marginally.

“About 48.8 per cent of Australian households saved part of their income in June 2010, up from 46.2 per cent in March,” the report said.

The June survey revealed three quarters of Australian households fully own their own home or have a mortgage, falling from 79.8 per cent in March and 78.8 per cent a year ago.

Just over 30.5 per cent of households said they would put new savings into deposit-taking institutions, while bank deposits remained the most popular form of savings.

More than 40 per cent of households said they were debt free, while a third said they held mortgage debt, down almost four per cent since last quarter.

Almost 60% of households interviewed indicated that they use only 10% of after tax income to apply towards debts.  Clearly debt balances continue to grow.

Queenslanders were more likely to run into debt than those in other states, while NSW and Victorian residents were more likely to save than their counterparts in other states.

The outcomes kept wages growth just inside the RBA expected 4.5%.

Jun 10

RBA is hoping the current levels of household debt will not escalate. The levels of debt are manageable for the time being, but the governor of the Reserve Bank of Australia hopes that they do not climb much beyond their present level.

In a talk to the Western Sydney Business Connection yesterday, which surveyed current global and domestic economic conditions, Stevens noted that “households have serviced the higher debt levels very well. The arrears rates on mortgages, for example, remain very low by global standards. As a result the asset quality of financial institutions has remained very good.”

The debt to household income ratio stood at 156 per cent at December 2009, up from a post GFC low of 151 per cent earlier in 2009 and, apparently, continuing its steady climb. This ratio has doubled over 12 years and increased fourfold since financial deregulation commenced almost 30 years ago.
Governor Stevens would like to make sure that people do not get ‘carried away’ with borrowing in anticipation of future property gains as these are neither certain nor quantifiable.

“One would have to think that, however well households have coped with the events of recent years, further big increases in indebtedness could increase their vulnerability to shocks – such as a fall in income – to a greater extent than would be prudent.”

“It may be,” Stevens said, “that many households have sensed this. We see at present a certain caution in their behaviour.” Stevens went on to cite modest growth in consumer spending (which he linked more to consumer caution than to the absence of last year’s stimulus payments), an increase in savings rates and wariness toward borrowing.

Stevens noted that increased interest rates must have certainly had the affect desired to bring debt appetite down but also said “the level of rates is not actually high by the standards of the past decade or two. We can’t rule out something more fundamental at work.

“We can’t know whether this apparent change will turn out to be durable. But if it did persist, and if that meant that we avoided a further significant increase in household leverage in this business cycle, it might be no bad thing.

“Moreover if a period of modest growth in consumer spending helped to make room for the build-up in investment activity that seems likely, perhaps that would be no bad thing either.”

Jun 7

Every time you make a  loan application to a financial institution, they will look at your credit report to decide is they wish to offer you a loan.  According to a recent research more than 80 per cent of Australians have no idea what  their credit report says about them.

Credit reporting agency Dun & Bradstreet says people should check their credit report at least once a year – it’s free – and be aware of what actions can affect a credit report.

Credit reports in Australia only include identification details, credit applications and negative events such as defaults and bankruptcies. But from next year, extra details such as a person’s repayment history are set to be added.

Dun & Bradstreet chief executive Christine Christian (pictured) says regularly checking your credit report can help people secure credit.

“Consumers should place themselves in a position to understand exactly what a lender will see, and this means the first step to applying for credit should be ordering a copy of your credit report,” Christian says.

“This will allow consumers to find out whether recent credit applications will make it look like they have taken on too much debt, or if previous late payments are listed, potentially making it harder or more expensive to get credit.”

Dun & Bradstreet research shows that 86 per cent of Australians have no idea what their credit profile looks like.

Your credit profile is a combination of many factors.  Have you ever had a default recorded against your name? Is the default paid or unpaid?  How many times have you applied for a loan?  Many people do not realise that making too many loan applications will prevent lenders from approving their loan application.

National Australia Bank says it considers an applicant’s credit history every time approval for lending is required.

“A credit report is an assessment of the customer’s credit history and a key piece of data used in the lending decision,” a NAB spokeswoman says.  You will find that most lenders check your credit report each time you make a loan application .

Naturally it would be wise to know what is recorded on your credit report so that if the report contains any errors you are able to take action to remedy these.

May 6

Thousands of debt-ridden Aussies are likely to have problems with defaults over the coming months as the cost of living continues to rise.

Every year for the past three years, the total dollar value of defaults has spiked in the month of May by an average of 196 per cent, according to credit agency Dun & Bradstreet.

There is an expectation that non-bank defaults will start to grow again shortly.

The main  reason for credit defaults, is customers over-extending themselves.

There has been an increase in the number of unpaid phone and utility bills by over 113% during two of the past three years, based on Dunn & Bradstreet data.

Being late in paying even a small utility bill can seriously damage your credit history and impact the ability that you have to qualify for any form of credit in the future..

The RBA’s latest rise took the commercial mortgage rates to more than 7 per cent.

Weaker-than-expected March retail figures released today showed households had cut expenditure as the growing cost of living bites into disposable income. The growth in inflation is a major contributor to the financial stress being experienced by most Australians.

Apr 20

Aussies are carrying a very high level of household debt.  With property prices growing, home loans are higher than ever before, additionally most people are struggling with personal loans, credit cards and other debts.

A calculation by the RBA suggests that the total current level of mortgage debt in Australia is 38.2 per cent bigger than national household income, with rapid growth over the second half of last year likely to have been driven by the Government’s incentives to first-home buyers.

Household debt has been fast increasing over the past 20 years, but the financial crisis brought a temporary halt, The Australian reported.

Mortgage Debt had risen to 35.8 per cent more than income in March 2008, but then started receding as the Reserve Bank lifted rates and consumer confidence fell. By this time in 2009, the level of debt had dropped back to 33 per cent more than income.

While households are being encouraged to borrow by rising property values, the RBA figures show that, at the end of 2009, there was still a long way to go before households made up ground lost during the global financial crisis.

The total value of household assets, including housing, superannuation and share portfolios, had risen from a multiple of 6.5 times income to 7.2 times income, which was a level last achieved in 2004.

Rising interest costs are also starting to affect household finances, taking 10.6 per cent of disposable income in the December quarter, compared with a low of 9.6 per cent in the June quarter.

HIA relased some figures yesterday pointing to the growth in land prices being the main contributor to property value increases across the country.

The average cost of a block of land rose 14 per cent last year to $185,222, the fastest growth since 2004.

While home prices are going up, the volume of land being sold is falling, dropping 4.6 per cent in the December quarter, compared with a year previously.

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