Mortgage Loans, Home Loans, Bad Credit Home Loans

According to a new report by ING Direct, almost one in two Australian home owners are ahead in their mortgage repayments.
It seems that despite higher interest rates, 48 per cent of mortgage holders are making extra repayments on their home loans, up from 46 per cent in the first quarter of this year.
The new welfare index, which assesses the financial well being of households on six different financial fronts, also found Australians are very comfortable with their long term debt positions.
Average comfort levels for long term debt commitments (home and personal loans) were 6.5 out of a possible 7, compared to short term debt (credit cards) at 5.8.
In contrast, when it comes to households’ long term assets and ability to meet bills, comfort sits at just 3.9 and 4 per cent respectively.

Virgin Money is intending to enter the Australian Mortgage Market with a competitive home loan product developed in conjunction with Citibank. Virgin is also making a comeback to Australian banking with two new credit cards and an online savings account.

The next logical step, according to Virgin Money’s chief executive in Australia, Matt Baxby, is to progress to transaction accounts as well as home loan products.

Mr Baxby has explained that the roll-out process will be a gradual one. Virgin Money are partnering up with Citibank on all of it’s financial products.

The Virgin Money credit card has “no annual fee ever” and charges 2.9% interest on balance transfers for the first six months and then 16.95%. The Virgin Flyer card allows users to collect frequent flyer points and offer two-for-one flights and a free flight when customers use the card before 15 October.

The Virgin Saver online account has an introductory variable interest rate of 6.75% per annum, which decreases after four months to 5.35%.

AFG has announced a new name – AFG Home Loans.

According to AFG Home Loan’s general manager Paul O’Donnell, there are a number of reasons that support the rebranding.

Today there is much more diversity between home loan rates and number of mortgage providers.

Home Loan products offer far more diversity.  Some smaller lenders have withdrawn certain loan types, including low doc home loans.

Because of these dynamics, Mr O’Donnell said there is a growing demand among AFG members for lenders with a strong service focus and credit appetite that will meet the needs of their customers.

“AFG Home Loans delivers that. The newly rebranded division offers competitive interest rates, max turnaround times of 72 hours for loan approval and superior service.

According to reports by the  The Australian Financial Review, Citibank and Virgin Money are working on a retail project that is designed to shake up the finance industry in Australia.

It seems that Virgin Money and Citibank are intending to challenge the major lenders control over transactional bank accounts, credit cards and mortgages.

The latest APRA statistics indicate that the big four banks currently make up more than 80 per cent of all the home loans written.

Virgin Money’s Matt Baxby told the media that the Australian mortgage industry was ready for some new blood.

Mr Baxby said before the GFC, consumers had a choice of banks, however, since the GFC, the choice of lenders has narrowed significantly

There is growing concern in the mortgage industry that the government’s plan to reduce early mortgage exit fees could affect competition rather than promote it.

Smartline’s executive director Joe Sirianni told The Adviser that any cuts to mortgage exit fees could severely disadvantage both mortgage managers and non-bank lenders.

Lenders with higher exit fees are able to offer lower interest rates during the life of the loan.  If government regulations mean that all lenders need to have low exit fees, smaller lenders will need to put up their rates to recoup costs.

Australian Bankers Association chief executive Steven Münchenberg told The Adviser that exit fees, as they currently stand, are fair and justifiable.

“The ABA is not concerned about the focus on exit fees per se. We feel that the fees are justifiable and the industry will be able to show that,” he told The Adviser.

Looking at exit fees in isolation creates a distorted picture.

Mr Munchenberg said keeping up-front mortgage fees lower ultimately benefits all customers and supports customer switching.

According to Mr Munchenberg, the effect of deferring these up-front fees, for example, legal service fees, is that it reduces the cost to the customer of setting up a new loan at a time when they are incurring many other costs.

“There’s plenty of evidence that people are switching mortgages – around 30 per cent of owner occupied home loans are refinanced each year,” he said.

Last week, the government announced several key reforms to early mortgage exit fees.

According to a statement from Deputy Prime Minister Wayne Swan, from today onwards, consumers will be able to challenge early exit fees that are unfair.

“Currently, some banks are using mortgage exit fees to lock customers into their home loans. Exit fees can be so high that there is no incentive to switch to another lender, even if they are offering a substantially lower interest rate,” the statement read.

Mortgage Arrears and late payments have gone up in the first three months of 2010, according to Standard & Poor’s credit agency.

Arrears on the mortgage loans bundled and resold as prime residential mortgage-backed securities rose by 0.19 per cent to 1.44 per cent in the first quarter of 2010.

For subprime mortgages, arrears – or late payments – rose by 0.67 per cent to 12.24 per cent in the same period.

Standard & Poors believe that the most vulnerable mortgage holders in the current market are the self employed and the first home buyers who entered the market while interest rates were at historically low levels.

The RBA has increased interest rates six times since October in an effort to blunt inflationary pressure and keep the economy’s growth sustainable, keeping rates on hold at 4.5 per cent in June.

According to minutes of the last RBA meeting released today, interest rates should remain on hold until August and possibly longer.

“Nevertheless, we believe the overall impact on defaults and losses is likely to be low if property values are preserved,” S&P said in a statement.

Australian capital city home prices jumped 20 per cent in the year to March but have begun to slow amid slumping home loan volumes and faltering auction clearance rates.

National city home prices edged up only 0.2 per cent to a median price of $460,000 in April, RP Data said last month.

Australia’s household debt position has grown from half a year’s disposable income in the early 1990s to about one and a half years’ income in 2006, largely on the cost of housing.

According to the RBA, a series of interest rate increases this year have made Australian Consumers more cautious when it comes to further loans.

People are concerned that by taking on extra debt they may find themselves vulnerable to shocks such as falling income and are exhibiting cautious economic behaviour, RBA Governor Glenn Stevens says.

“We see at present a certain caution in their behaviour – even though unemployment is low, and measures of confidence have been quite high, consumer spending has seen only modest growth,” Mr Stevens told an audience in western Sydney.

“The long downward trend in the saving rate seems to have turned around and I think we are witnessing, at least just now, more caution in borrowing behaviour.

The RBA lifted the cash rate six times between October last year and May to its current 4.5 per cent.

Mr Stevens said the big rise in debt over the past decade had come  mostly from the household sector.  People were borrowing more against their home to fund lifestyle expenses as well as investments.  With several interest rate increases as well as uncertainty with the world financial markets, people prefer to wait and see before taking on extra unnecessary debt.

But he said mortgage arrears rate was low by global standards and borrowers had serviced household debt levels very well.

But the RBA chief said it wouldn’t be wise to let debt levels rise unabated over the years ahead.

People using the services of a mortgage broker may not necessarily be recommended mortgages that are best suited to their needs.  Mortgage Brokers need to contend with volume requirements set by the big banks. Brokers do not meet the minimum sales targets of CBA and Westpac, for example, may not qualify to submit future business to these banks

Westpac and CBA  make up more than half of the Australian Home Loan market.

Volume requirements set by the lenders may conflict with the new credit laws to be phased-in from July 1 that require brokers to provide independent advice to customers on which loans would best meet their needs.

The lenders with volume requirements argue that brokers who are not selling their mortgages cannot be up-to-date on their loans‘ features and that they need to be re-accredited to sell their loans.

After Westpac lifted its mortgage rates well above the increases in official interest rates, that bank’s mortgages came to be among the most expensive available in the market.  However a broker who would like to maintain their accreditation with the bank may find themselves recommending a loan which is not truly in the best interest of the borrower.

By not doing so the broker risks the extra time and perhaps extra costs, of becoming re-accredited with the lender.

Some lenders also pay bonus commissions for selling a certain dollar-amount of loans, or offer other incentives such as overseas travel.

The volume target requirement placed by lenders certainly creates a conflict of interest for the broker and should be outlawed.

The first obligation that brokers have is to their customers and they should not be recommending loans just to make volume target.

NAB has decided not to impose volume criteria on their brokers.

Brokers are paid higher commission on the basis of criteria such as the levels of delinquencies on the loans and the brokers’ demonstrated knowledge of the bank’s products.

Under the new credit licensing laws, licence-holders are required to lend responsibly; to meet minimum education and training standards; and to join an ASIC-approved complaints resolution scheme.

The onerous requirements under the credit licensing regime and tough penalties for breaches will probably see many of the part-time mortgage brokers – such as solicitors and accountants who do a bit of broking that is incidental to their main activities – not apply for a licence.

In all cases it is adviseable for consumers to do some of their own checking  of products available before agreeing with the loan recommended by a broker.

HOME upgrades, renovations, stay-at-home children and ageing parents will force a growing number of baby boomers to carry debt into retirement.

This will further drain their already-underfunded super and force many to work longer or accept a lower standard of living.

Some workers have done very well from the super system, but it is increasingly emerging as a case of the haves and have-nots. Simon Kelly, an associate professor at the National Centre for Social and Economic Modelling, a research centre at the University of Canberra, said the average super account balance for males aged 60 to 64 was just $135,000. For females it is less than half that, $62,000. These are well short of the sums needed to fund a comfortable retirement.

But the ”average” is skewed by a minority with very large super accounts.

Mr Kelly said the median balance for men – the middle figure when you list all the account balances from top to bottom – is $33,000 and for women it is zero. That’s right: at least half the women in this age group have absolutely no super.

Mr Kelly said the median account for men aged 50-59 was $44,000 and $10,000 for women. – and the old assumption that people would retire debt-free will not hold true for the next generation of retirees.

In a 2008 research report for the AMP, the Centre found a growing trend to older generations taking more debt into retirement, with twice as many over 60 paying off a mortgage than 10 years ago.

The chief executive of the Association of Superannuation Funds of Australia, Pauline Vamos, said: ”Being debt-free by the time you retire is unlikely to be the norm.”

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