According to the latest Standard & Poor’s report, bad credit home loan arrears also fell by 127 basis points to 10.38 per cent during the same period.

“The decline in home loan arrears point to evidence of recovery after weather-related disruptions in early 2011,” Standard & Poor’s credit analyst Vera Chaplin said.

“We expect Australian RMBS mortgage portfolios’ performance to remain stable, supported well by the Australia’s positive economic prospects and continued strong labor market.

“However, the potential flow-on effect of economic and financial market uncertainties in the eurozone to Asia Pacific region could weaken Australia’s currently positive economic outlook and undermine consumer and business confidence.

1. Can you afford the loan you are applying for?

If you have just made an application for a car loan , a personal loan or a home loan, it may well be that your income is not sufficient in the eyes of the lender to qualify you for the loan. You can run your scenario through a “how much can I borrow” calculator online to see even approximately if your income is enough to qualify you for the loan;

2. Do you have some bad credit history or excessive loan inquiries?

You can perform your own credit check online for free to see what a potential lender sees when you make a loan application.

www.mycreditfile.com.au is the site to visit for a free credit check.

Note that if you approach others to run a credit check on your behalf it may adversely affect your chances of qualifying for a loan. Most lenders will decline an application if you have unpaid defaults. judgements, bankruptcy or even too many loan inquiries on your credit report.

Bad credit should not prevent you from qualifying for a secured loan but you will need to approach second tier lenders – your banks is unlikely to accept such a loan application.

3. Have no financials to substantiate your income?

While you may qualify for a low doc home loan or a low doc car loan, there is no such product as a low doc personal loan.

Therefore if you have some bad credit, and you are looking for an unsecured bad credit low doc personal loan – unfortunately such loans simply do not exist.

As home loan rates begin to ease, overextended borrowers will be able to breathe a sigh of relief. Rates will be reduced not only on home loans but also car loans, personal loans and credit cards…making it easier for families to stay afloat.

While 2011 had brought 2 interest rate reductions only towards the end of the year – it was enough to make a difference to many families carrying significant levels of debts. Borrowers have been on a look out for debt consolidation opportunities with many looking for a well priced fixed rate mortgage which allows them to consolidate unsecured debts in to the loan.

Further reductions to interest rates should bring further mortgage stress relief which is very much in demand.

Figures released to the market yesterday show that mortgage arrears were down to 1.42% of all home loans in September, after being recorded in May this year at 1.77%.

Fitch Ratings believe that greater stability in the interest rates is mostly responsible for this decline.

While overall home loan arrears and default levels improved in all states, localities still doing it tough included Sydney’s south-western suburbs, the NSW Central Coast and the Gold Coast in Queensland.

The south-west of Western Australia was likewise still among the regions with higher delinquencies, and tourism destinations in coastal locations were increasingly in arrears.

Banks caved to pressure from the consumers and the Treasury last week when they finally announced their decision to pass on the Reserve Bank’s 25bp cut. Non-bank lenders have also done the same, making most variable home loans offered in Australia another quarter of a percent cheaper.

Liberty Financial announced it would cut 25bps off its variable home loans, taking the rate on its basic home loan to 6.49%.

Liberty Financial national sales manager John Mohnacheff said that the rate reduction is expected to benefit the deflated property market and generate more interest in non-bank home loans.

“With credit growth and consumer confidence both down, this change will create momentum and set the scene for an improved outlook in 2012,” he said.

FirstMac and Australian First Mortgage have also announced that they will pass on the full 25bp cut. AFM’s move will bring the rate on its 95% LVR full doc home loans to 6.49%.

Second tiers have also followed the Reserve Bank move, with AMP Bank and Westpac subsidiaries St. George, BankSA and Bank of Melbourne announcing 25bp cuts.

Standard & Poor’s, the world’s biggest ratings agency, has changed its ratings criteria in response to criticism in wake of the global financial crisis in 2008.

ANZ, Commonwealth Bank, National Australia Bank and Westpac were each cut one notch to AA-minus, the fourth-highest credit rating on S&P’s scale.

Macquarie Group was cut by two levels to BBB, the ninth-highest grade. Standard Chartered Plc’s rating was increased one level to A-plus, the fifth-highest rating.

The move is expected to add to the pressure on the nation’s top banks, with the funding costs for Australia’s banks already starting to surge. Banks will find that their cost of funding will go up.

In July, a research report from Deutsche Bank suggested Commonwealth Bank, Westpac, ANZ Bank and National Australia may need to sell about $144 billion of bonds in the 12 months ending in June 2012.

The news comes as fellow ratings agency Moody’s yesterday warned that Australia’s banking system faces “crucial challenges” over the coming year, with global investors to potentially snub the banks as funding costs climb and the world economy slows.

The ratings agency has warned that the health of the Australian finance system is likely to hinge on our level of exposure to the European Debt Crisis.

Senior vice president Patrick Winsbury said consumer deposits had been “growing at a  faster level than loans, allowing the major banks to reduce their reliance on offshore wholesale funding”.

According to a report published by Standard & Poor’s Ratings Services, non conforming home loan arrears including bad credit home loan arrears increased by 52 basis points to 12.18 per cent, with $1.63 billion in subprime RMBS outstanding, which is down by around $282 million in July compared to June 2011.

It seems that borrowers who are self employed are most significantly exposed to the risk or arrears on their loans.
Clearly the current economic conditions in Australia have a lot to do with cash flow problems experienced by the self employed borrowers. Many business owners are struggling and are having difficulties meeting all their repayment obligations.

Borrowers with a history of bad credit but with equity in property may wish to consolidate unsecured debts into their mortgage. In doing so you may find that your monthly repayments are reduced significantly. Naturally to qualify for a mortgage refinance at an increased amount you must be able to demonstrate loan affordability.

If you are not a home owner but own a motor vehicle outright or perhaps a boat or a motorbike, you could use the equity in these assets to apply for a secured personal loan for debt consolidation. Value of your asset must exceed the amount that you wish to borrow.

If you have some history of bad credit, have no assets and are looking to consolidate unsecured debts – you may also wish to consider a debt agreement. To qualify for a debt agreement you must have at least $8,000 in unsecured debts (this can not include your home loan or car loans). If you have previously had a part 9 agreement or were previously bankrupt you will not qualify.

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.