Shock rise in mortgage default cases
Stressed-out
borrowers should speak with their lender and not wait until it's too late
- Borrowers unable to catch up on payments
- Migrating into 90-plus days in arrears
- Mortgage performance at record low
-
IF YOU have
missed three monthly mortgage payments, expect a default notice in the mail any
day now.
More people
than ever are defaulting on their home loan repayments, according to credit
ratings agency Fitch and the situation is expected to get even worse.
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.
In its
report The Dinkum Index Fitch found mortgage payments that were more than 90
days late increased a surprise 12.5 per cent in the past three months of 2010,
compared with the previous quarter.
"Arrears
unexpectedly increased, mainly as a result of more delinquent borrowers
migrating into the 90-plus days arrears bucket,'' says James Zanesi, associate
director in Fitch's structured finance team.
Home loans,
savings accounts and more
"Mortgage
performance is also expected to have worsened in the first quarter of 2011, mainly
because of the usual impact that the Christmas holiday spending has on
first-quarter mortgage performance.
"The
25-basis-point interest rate rise in November and the Queensland floods and
Cyclone Yasi might also have had an effect on the index.
"Nevertheless,
arrears are still relatively low and while increasing mortgage rates normally
translate into an increase in arrears, Australian borrowers have shown a strong
capability to cope with higher mortgage payments in 2010.''
Resi Home
Loans chief executive Lisa Montgomery says if the writing is on the wall for
stressed-out borrowers, they should immediately speak with their lender and not
wait until it's too late.
"There
is usually a really easy fix to mortgage stress,'' Ms Montgomery says.
"You
can look at going interest-only for a while to reduce the repayment, or
consolidate other loans.
"But
these strategies should only be used in the short term to prevent financial
hardship.''
Ms
Montgomery says there is no sign of increasing mortgage arrears at Resi. If
anything, people are saving more than ever.
Personal
finance expert and MyBudget founder Tammy May says many people fail to
acknowledge if they are in financial stress.
"We are
definitely seeing a lot of arrears. There's no slowdown in our business but the
mortgage is generally the highest priority, or whichever collector is harassing
them the most,'' Ms May says.
"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.
"If you
continue to ignore the issue, you'll get a letter of eviction, which is
different for every lender and circumstance.
"I know
it's embarrassing to talk about getting into this situation. No one expects it.
"It
throws people off balance but bite the bullet and be honest, ask for help, even
if it is a friend or family member.''
Non-conforming
low-doc loans usually have delinquency levels more than three times the rate of
regular loans.
Loan Market
chief operating officer Dean Rushton says self-employed people often apply for
low-doc loans, which often have higher interest rates than full document loans
and larger minimum deposits.
But he says
low-doc loans have been harder to obtain since the global financial crisis and
as a result of the new National Consumer Credit Protection laws.
"These
people have felt the impact of interest rate rises last year, so they are hit
with a double whammy if they also have a struggle to obtain finance,'' Mr
Rushton says.
