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

Now and again we feel frustrated at the lack of financial education provided in our schools. On a daily basis we receive dozens of inquiries from people who would like to purchase a home but do not have a deposit. There may be a minor credit issue in the past or even a discharged bankruptcy.

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.

It seems that borrowers are beginning to catch up with their arrears as the number of home loan arrears has leveled out and came in slightly lower in May as compared to April of this year.

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.

Home Loan arrears are expected to stay at the presently high levels in the immediate future.

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.

If you have come to this website you have probably had some issues with your credit history. That is not a problem as far as qualifying for a home loan is concerned. However do not expect that you will be able to qualify for a home loan through a bank or borrow up to 95% of your purchase price….this is not possible with bad credit home loans.

While we do understand that First Home Buyers who have never owned a home before may have trouble finding the required 20% deposit, there is little that can be done. Funders who do offer bad credit home loans see these loans as riskier than home loans offered to clean credit borrowers and as such are not prepared to lend 90% or 95%.

Every day we receive dozens of inquiries from people looking for a no deposit bad credit home loan – such loans have never been available. Even in better times when the banks and some lenders were prepared to offer 105% home loans – these required the applicant to have a very clean credit history and very stable employment history. Today the banks have reduced their lvrs to 95% at maximum. The non-conforming lenders have maintained their maximum loans at 80%.

Expect the interest rate to be a little higher or a lot higher depending on the extent of your bad credit.

Also unlike bank loans, bad credit mortgages are not available in some postcodes – preference is given to metropolitan areas of all states. If you wish to purchase a property on several acres and you have credit history issues we will not be able to assist.

According to a recent report from the Standard & Poor’s, the levels of borrower incomes could have just as much impact on their mortgage stress as the rising cost of living.

Certainly the rising cost of living are responsible for much of the stress borne by borrowers, but not all mortgage stress is the domain of low income earners. Middle and high income earners are also caught up in the home loan unaffordability trap.

In many cases the middle and high income earners make different lifestyle choices and as a consequence their living costs are higher than those assumed by most lenders in their qualifier calculators.

“While income growth can offset rising costs, a drop in income may put significant pressure on certain borrowers. For middle-to-higher income earners, we believe that the Henderson Poverty Index (a measure widely used by lenders in Australia to estimate living costs to qualify borrowers for housing loans) does not reflect these borrowers’ typical lifestyle choices and resulting costs of living.

When qualifying borrowers for a home loan, most lenders also assign a minimum net surplus ratio in their calculations to allow for potential escalation in costs of living and/or interest rates. Nevertheless, the problem is however that neither cost of living nor interest rate increases erode the net surplus ratio as quickly as a drop in the borrower’s income.

Any changes to income such as a loss of employment, illness or maternity leave could have a much more significant impact on mortgage affordability and stress in the middle-to-higher income borrower categories than rising living and/or interest costs.

Borrowers on higher levels of income also tend to have a greater component of variable income in the form of incentives, bonuses, commissions, and investment income. Some of these ancillary forms of income dropped significantly during and after the global financial crisis – directly affecting the home owner ability to meet mortgage repayments.

New homeowners will need to watch every dollar in the wake of a significant increase in the cost of living this Easter.

Mortgage Choice has recently conducted a survey of new home owners which indicates that 32% of borrowers who bought their home within the last two years are intending to spend less this Easter than they did last year. Home Owners simply fee that due to rising interest rates they are not able to afford the same standard of living as they could last year.

Borrowers are worried despite the recent stability in rates with the last time that RBA had lifted the Australian cash rate being November 2010.

The Recent First Homeowner Survey conducted by Mortgage Choice revealed that almost one third will spend less this Easter and only one in seven will spend more, despite five months of steady interest rates. Borrowers are determined to either put money back in their home loans or make sure their outgoing cashflow remains stable.

Many borrowers are still feeling the effects of November’s rate hike, while some are still suffering the economic effects of natural disasters.

A recent study by mortgage insurer QBE has confirmed that many home owners would not be able to keep up with mortgage repayments if rates were to increase any further.

The report found that approximately 2 per cent of home owners interviewed  said they were unable to meet their mortgage repayments with their current household incomes. Many resorting to the use of credit cards and other loans to make home loan payments.

Eleven per cent said they would fall into arrears with their mortgage if rates climbed 0.25 percentage points, with the proportion rising to 23 per cent if rates increased 0.50 percentage points. That is a real concern given that most economists predict that RBA will be lifting rates by at least 50 basis points before the end of 2011.

The report published yesterday coincided with data indicating the economy was bouncing back after slowing following the summer floods and the interest rate rise late last year.

The National Australia Bank monthly business survey showed that business conditions have improved in March to reach their highest level in a year.

CommSec economist Savanth Sebastian said “the key has been the fact that the Reserve Bank has decided to keep rates unchanged now for five months.

NAB economists believe that given the above, RBA is likely to increase rates, by 0.25 per cent in August, with a further increase in November.

According to statistics from ratings agency Standard and Poors – a  significant number of Australians are suffering from Mortgage Stress.

Arrears on the home loans that back prime residential mortgage-backed securities (RMBS) are now sitting at the highest level since April 2009.

It seems that home loans underlying Australian RMBS that were greater than 30 days in arrears increased further to 1.59 per cent in January, up from 1.38 per cent in December 2010.

Mortgage Arrears for sub-prime home loans backing RMBS went up a huge 126 basis points to 11.45 per cent.

S&P believes that the increase in mortgage arrears is greatly attributed to a spate of natural disasters around Australia in the first few months of 2011. Many borrowers who are self employed were especially affected by these.

But the long-term economic outlook is positive and is expected to support a stable property market in 2011, the agency said.

S&P’s report came as more statistics were published on Australians being financially stressed as they battled rising energy costs and food bills while continuing to pay down debt.

Commonwealth Bank subsidiary BankWest said almost a third of all Australians were “financially unfit”, up three per cent from a year earlier.

BankWest commissioned Brand Management to conduct an online survey of 792 individuals in February.

The survey identified that 31 per cent of Australians are in a bad place financially with little asset backing, an undue reliance on debt and lack of insurance coverage to address unforeseen eventualities.

Only 17 per cent were found to be financially fit, that is had regular savings, low housing costs, a range of insurance and high asset levels relative to debt and income, BankWest said.

That’s five per cent lower than in 2012, with many respondents stating the the higher costs of living have had an impact on their ability to manage financial obligations effectively.

If you are considering going guarantor for a friend or a relative – beware, this favor could damage your credit history and potentially cost you your own home.

John and Nadia Abdelkodous, a couple from Casula in Sydney, borrowed $494,000 from Adelaide Bank in 2001 to help their son purchase a house.

They made their house in Casula available as security for the loan, which allowed their son Victor to buy a home in Prestons. The bank started default proceedings in 2005 and the parents took over the repayments until 2009, when they found themselves unable to maintain repayments on behalf of their son.

During 2010, Adelaide bank obtained a default judgment against the parents for non-payment of the loan as guarantors.

There has been a large number of court cases in recent months which are very similar to the one described above. Most guarantors see their action as ‘doing a favor for someone’ and do not understand that they in fact are responsible for making repayment, a responsibility that they are guaranteeing with their good name and assets.

A guarantee is where you promise to repay the loan if the borrower does not. The lender will ask for a guarantee when it thinks the borrower might have difficulty repaying the loan. If the borrower does not make all the payments under the loan contract, the guarantor will have to pay back the outstanding amount plus interest and any fees and charges.

Before agreeing to act as a guarantor you should verify the following:

- Amount and source of income of the borrower. You must be comfortable that you will never need to step in to make repayments instead of the borrower.

- Consider your own finances and make sure you are able to make the repayments if something goes wrong with the borrower. Are you prepared to sell assets to cover the borrower obligations – you may need to.

- Understand exactly how much it is that you are guaranteeing. Also, confirm that the lender cannot change the amount guaranteed without your consent.

- Obtain a copy of the mortgage contract, which should include the amount of the loan, the interest rate, the term and the amount of monthly loan repayments. Make sure that you are comfortable with this obligation.

According to credit agency Fitch, more people than ever are defaulting on their home loan repayments. The situation is at this stage not expected to ease.

The agency has found borrowers who were behind late last year have been unable to catch up and are now reaching the critical three-month trigger point for defaults. If in fact you have not paid your mortgage for 3 months – you can expect to receive a home loan default.

It seems that Home Loan payments that were 3 months or more in arrears have gone up by 12.5 per cent in the last three months of 2010, compared with the figures earlier in 2010.

Borrowers already struggling with their loans clearly fell further behind as interest rates shot through the roof in November last year.

This coupled with christmas spending spree for many has put people seriously behind when it comes to their mortgage.

Mortgage arrears are still relatively low and while increasing mortgage rates normally translate into an increase in arrears, Australian borrowers have demonstrated resilience and a strong capability to cope with higher mortgage payments in 2010.’

Borrowers who are having trouble with their repayments should take action earlier instead of waiting until they receive a default notice.

Sometimes you could reduce payments for a few months or ask for a payment holiday due to unforeseen circumstances such as illness or loss of work.

“But these strategies should only be used in the short term to prevent financial hardship.”

Personal finance expert and MyBudget founder Tammy May says many people fail to acknowledge if they are in financial stress.

“Do a budget and work out what you can afford in terms of basic mortgage repayments.

“You don’t have to pay it in a lump sum but you don’t want a default notice after 90 days.

Borrowers who continue to ignore default notices may find that an eviction notice comes next. This is something not to be taken lightly.

Non-conforming low-doc loans usually have arrears levels more than three times the rate of regular loans.

One of the reasons for this is that the low doc lenders tend to charge higher fees, rates and charges.

Low-doc home loans have been harder to obtain since the global financial crisis and as a result of the new National Consumer Credit Protection laws.