Mortgage Loans, Home Loans, Bad Credit Home Loans

The ongoing war between the big four Australian banks in an effort to gain a larger share of the Australian home-loan market was moved up a notch yesterday, when the Commonwealth Bank cut the interest rate on its no-fee home loan.

Effective today, the bank will reduce its no fee mortgage by 13 basis points to 7.11 per cent.

Group executive retail banking service Ross McEwan said CBA’s no fee home loan has been very popular with borrowers and this latest interest rate reduction should make it clear to the bank customers that the CBA is committed to offering the best possible home loans to its borrowers.

“As Australia’s largest provider of home loans, we understand the issues that are important to our customers,” Mr McEwan said.

The bank believes that the best way of gaining a greater market share is for them to offer a very competitive interest rate on a home loan with the kind of features sought by all borrowers.

The new rate will automatically be applied to all new and existing no fee home loans, and represents a saving of $27 per month on the average No Fee home loan.

John Symond, the founder of Aussie home loans has vowed to take the implications of exit fee ban on home loans to the consumers. They must be made to understand the true implication of this new law.

Following the government’s unilateral ban on DEFs being upheld in the Senate, Symond has said that it will be consumers who will have to pay for this change. It may not have been made apparent to them as yet. The government has merely concentrated on selling the advantages of this law, making it free and easy for borrowers to refinance between lenders. However there is nothing free and easy about home loans. Someone will need to cover the cost of early refinance by some borrowers – this cost will inevitably be borne by all borrowers.

“If they think consumers won’t know the reason why competition has decreased and banks are increasing their muscle, I’m happy to remind consumers that Mr Swan and the politicians who supported him were the cause of that,” Symond said.

Symond expressed disbelief that Senators sided with the government’s exit fee ban in Wednesday’s 35-35 vote, after the government was warned of the impact the ban could have on the competitive environment.

“They received warning from various industry representatives. The Senate banking inquiry warned them. Wayne Swan’s Treasury people are also to blame,” he said.

The likely impact of this legislation is higher interest rates and more upfront fees for all home loans.

“If it does impact consumers and make non-banks less viable, and see big banks taking advantage of that, I think that’s where industry bodies and myself will remind consumers that the reason for this is bad policy on the part of the government,” Symond remarked.

According to a survey by Mortgage Choice only 5 per cent of borrowers who decide to refinance their home loans incur charges in excess of $5000.

Majority of people pay very little if anything when refinancing their home loans. On average borrowers incur costs of just under $500 during a refinance and that includes government charges, title transfer fees etc.

But there are other reasons people don’t refinance. Perhaps they have a fixed or partly fixed loan and would incur a break fee imposed by their lender to cover the difference between the rate they are fixed on and the current rate.

Majority of people interviewed did not even mention the cost of mortgage refinance as being the reason why they decide to stay with their current home loan.

While there was significant speculation in the media over the past couple of days over the direction that the Senate will take in relation to the proposed banning of exit fees on home loans – today the issue has been resolved once and for all. The Senate has backed a federal government ban on home loan exit fees, rejecting a bid by the opposition to overturn the prohibition, aimed at increasing competition in the home loan market.

The federal government introduced legislation to ban mortgage exit fees last December, claiming that the exit fee removal will improve competition in the Australian home loan market. However a number of industry players have explained that this step will in fact spell the end to many smaller lenders and therefore create a monopoly like environment in the home loan space in Australia.

The opposition and independent senator Nick Xenophon had sought to disallow the ban before it came into effect next month, with Senator Xenophon proposing the measure be limited to the country’s four major banks.

Senate support for the ban means that from the 1st of July 2011, no lender will be allowed to offer borrowers home loans with exit fees.

According to new figures released by business research house RFi, home loan refinance activity grew during April as compared to prior months.

In terms of actual numbers, there were 14,652 dwellings were refinanced during April – 528 more than in March – representing a 3.7 per cent increase.

When expressed as overall dollar value  – home loans refinance during April were worth  5.4 per cent more than March and had the value of $3.7 billion. An average mortgage refinance was of the amount of $253,945.

Banks had refinanced 12,173 home loans during April. This was a drop of 7.3 per cent from the 13,132 home loans during March. The combined value of refinancing activity for banks was down 9.3 per cent to $3.2 billion.

Refinance activity through non-banks had gone down by 14% during April. The aggregate value of home loans refinanced by Non-Banks was also down 4.2 per cent.

The average size of a non-bank refinanced loan was $176,310 in April 2011, RFi said, representing an 11.8 per cent increase for the month.

Most people believe that being employed and having a deposit is enough to qualify for a home loan with most lenders – however this is not quite true.

Lenders in Australia are required by law to take into account a lot more than just your income and deposit. In fact lenders could lose their license if they fail to also take the following into account:

- Credit History of the Applicants – if borrowers have any arrears or even paid defaults, this will affect their abiliity to qualify for a home loan with mainstream lenders.

- Age of borrowers – those who are in their late forties and are looking for their first home loan may be in for a rude shock when they find out that they are now too old to borrow over a 25 year term and need to take a loan over a 15-20 years – making it far less affordable for most and therefore requiring a far higher income to pass the loan affordability test.

- Existing repayment obligations as well as recent credit inquiries are all taken into account.

- Size of the property as well as its location is also important to the home loan qualification rules.

Lenders are very keen to avoid the kind of risky home loans that precipitated the global financial crisis and comply with new responsible lending practices.

People do not understand how much their credit history impacts their ability to qualify for a loan – it will even affect the rate you will be quoted and the fees you may be required to pay.

Certainly lender  discriminate on postcodes as well, with more remote postcodes and certain areas presenting a higher risk for the bank.

Smartmove professional mortgage adviser Simon Orbell says potential home-loan borrowers need to take action now to ensure there are no skeletons lurking in their financial closets.

“Get a copy of your credit report from Veda Advantage (mycreditfile.com.au) if you suspect there may be some previous misdemeanours on your file,” he says.

“Knowing about them up front allows you to overcome any issues that may arise in the credit-application process. Take up a My Veda Alert subscription from the website to maintain and take measures to keep your credit file clear.”

However just because you bank declined you for a home loan it does not mean that you will not qualify with any other lender…do your home work and this will pay off in the long run.

Pepper Home Loans, a specialist non conforming lender has announced a reduction to interest rates on two of its popular home loans, effective June 20.

As well as cutting its interest rates, Pepper is intending to changed the LVR tiering on the Pepper Flexi Advantage and Pepper Self-Employed Advantage products.

The Pepper Flexi Advantage, is available to potential borrowers at an LVR of up to 65 per cent. This Home Loan will now include a rate of 8.25 per cent and a mortgage risk fee of 1.25 per cent.

The Pepper Self-Employed Advantage, with an LVR of up to 65 per cent, will include a rate of 8.45 per cent and a mortgage risk fee of 1.25 per cent.

Unlike other specialist home loan lenders, Pepper is happy to refinance other low doc, non-conforming, private and solicitor home loans with both of these products.

Borrowers who are fearful of increasing interest rates and are considering fixing their home loans may have left it too late.

While borrowers can decide to fix their loans at any time – a couple of years back before the last cash rate increase would have been a better time to fix a mortgage than today.

Back then the cash rate was around 3% and real rate savings could have been made.

Nobody wants to fix their mortgage when interest rates are falling. They still believe they can save money by riding out the storm.

Today many experts believe that it is best to stay with a variable rate, given that it is unlikely to be increased by more than 25-50 basis points in the short to medium term.

Fitch Ratings survey of home owners  identified that home loan affordability is rapidly dropping with one in 80 home owners being unable to afford to make their loan repayments.

Queensland was the worst hit state with the proportion of home loans in arrears jumping up from 1.54 per cent to 2 per cent between November and March.

Given that the Australian property market has seen some serious drops in values, many property owners may find themselves with the additional problem of negative equity.

Melbourne home values have already come down by 2.4 per cent since April 2010.

In a note to clients, Merrill Lynch analyst Matthew Davison said prices would fall further as it became clear interest rates would climb with “recent reports suggesting this is occurring now”.

Victoria is the best-performing state in the Fitch Ratings survey with home loan arrears and defaults of just 1.34 per cent.

NSW and Queensland dominate the worst performing regions and postcodes with the worst, Nelson Bay, north of Newcastle in NSW, having a delinquency rate of 5.6 per cent, meaning one in 18 of its mortgages are overdue.

According to figures released by the Australian Bureau of Statistics, Home Loans for owner occupation went up by 6.3 per cent to $13.81 billion during April 2011. This was an increase from $12.99 billion during March.

Commercial loans numbers fell by 8.8 per cent, seasonally adjusted, to $29.38 billion in April, from $32.21 billion in March.

The figures from the ABS also show total personal loans only went up slightly during April to $6.75 billion, up from $6.62 billion in March.

Investor home loans are included above in the commercial finance category.