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.

According to recent statistics, the savings ratio for households has decreased to 1.5% -  being the lowest level in three years.

Shane Oliver, chief economist at AMP Capital, told The Sunday Telegraph the level of savings has been steadily declining over the past year, partially through choice and partially due to increasing cost of living and rising interest rates.

“Growing job security and decent pay rises have made people more willing to spend but rising interest rates have also taken their toll and eaten into disposable incomes, prompting people to spend from their savings.”

New car sales are up 11.2%, thanks in part to tax-breaks for businesses, while spending on transport overall, which includes flights, is up 5.7%.

According to Treasury figures, during the credit crisis the average household savings ration was at 6.9% in December 2008.

While savings was at a high, interest rates were lower, petrol prices fell and the government sent out stimulus package money.

Economists link increased spending to renewed sense of job security.

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.

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.

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.

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.

An Australian Housing and Urban Research Institute survey of 1,600 ageing home owners found the vast majority of home owners wanted to stay in the familiar surrounds of their own home, even though the alternative is at times more suitable to their needs.

The survey also found 37% of older Australians did not want to live in a retirement village, although some of them required special assistance on a day to day basis.

In response to the survey, SEQUAL chief executive Kevin Conlon said equity release products provided these older home owners to tap into the stored wealth of their home in order to stay in their home.

However, he said seniors considering equity release products should find an adviser that has gained industry accreditation.

Equity Release products provide home owners with the flexibility of accessing some of the equity ion their home without the need to pay it back during their lifetime.

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.

This is further talk of an “Australian Property Bubble” that we have heard of all too many time of late.

Morgan Stanley claims that owner-occupiers are in too much debt and investors are taking a risky approach by relying on capital gains to repay their mortgages.

The expert claims that the First Home Buyers scheme was not a healthy policy for the local property market as it has only put further steam into an already overheated market.

“Buying an asset that’s over-priced never ends well,” he said. “The real return on residential property over the next decade is likely to be negative, in my view.

“Investors have become Ponzi borrowers — Hyman Minsky’s term for borrowers who rely on capital gains to repay debt and interest — in the belief that housing is a ’sure thing’ as far as long term growth is concerned.  The overseas expert is saying that historical analysis of prices contradicts this belief.

However anyone who has lived in Australia for the past 4 decades at least (as has the writer of this blog) would have witnessed plenty of historical evidence that will blow the ‘overseas expert’s’ theories out of the water.

Australian Bureau of Statistics figures show overall average house prices rose 18.4 per cent for the full year to June, with Sydney prices rising 21.4 per cent — the largest since it began recording these figures in 2002. While this may be true, there was a drop of between 10% and 25% in property values in 2009 – the most significant value losses were experienced by Sydney.  Now that we are seeing 20% increases, no one seems to take a broader market view , say over the past 5 – 10 years..instead everyone is focusing on the past year.  Certainly if one was to consider home values over a longer term there would be clear evidence that we have not seen more than 15% increase in these over the past 2 – 3 years.

Furthermore the rate of growth has been slowing in recent months as rising interest rates feed through the economy.

Commonwealth Bank of Australia, the nation’s largest bank by market value, also warned last week it could be forced to raise rates independent of the Reserve Bank. CBA’s full-year results showed some key business units were struggling with higher costs.

The RBA – one of the few central bank’s in the developed world to raise rates since the global financial crisis — has been on hold since May as six rate rises since October feed through the economy. The official cash rate stands at 4.5 per cent.

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.