Rates hikes, Christmas and weather impact on mortgage payments
SHOULD you have missed t hree monthly mortgage payments, expect a default notice in the mail any day now.
More people than ever are defaulting on home loan repayments, according to credit ratings agency Fitch, and the situation is expected to worsen.
The agency has found borrowers who late last year were behind have been unable to catch up and are reaching the three-month trigger point for defaults.
In its report, The Dinkum Index, Fitch said it found mortgage payments that were more than 90 days late had increased a surprise 12.5 per cent in the last 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,’’ said James Zanesi, associate director in Fitch’s structured finance team.
‘‘ Mortgage performance is also expected to have worsened in the first quarter of 2011, mainly because of the usual impact of Christmas holiday spending.
‘‘ The 25-basis-point interest rate rise in November and the Queensland floods and Cyclone Yasi might also have had an affect on the index.
‘‘ Nevertheless, arrears are still relatively low and, while rising mortgage rates normally translate into an increase in arrears, Australian borrowers have shown a strong capability to cope with higher payments in 2010.’’
Resi Home Loans chief executive Lisa Montgomery said if the writing is on the wall for stressed-out borrowers, they should speak now with their lender and not wait until it’s too late.
‘‘ There is usually a really easy fix to mortgage stress,’’ Montgomery said.
‘‘ 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.’’
Montgomery said there is no sign of increasing mortgage arrears at Resi.
If anything, people are saving more than ever, she said.
Personal finance expert and My Budget founder Tammy May said many people bury their head in the sand and fail to acknowledge they are in financial stress.
‘‘ We are definitely seeing a lot of arrears,’’ May said.
‘‘ There is no slowdown in our business but the mortgage is generally the highest priority, or whichever collector is harassing them the most.
‘‘ 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 will receive a letter of eviction, which is different for every lender and circumstance.
‘‘ I know it is embarrassing to talk about ending up in this situation. Noone 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 said self-employed people often apply for low-doc loans, which may have higher interest rates than full document loans and also larger minimum deposits.
But, he said, low-doc loans have been harder to obtain since the global financial crisis and due to new National Consumer Credit Protection laws.
‘‘ These people felt the impact of rate rises last year, so they are hit with a double whammy if they have a struggle to obtain finance,’’ Rushton said.