Good news may be on the horizon for the Aussie mortgage market. Mortgage sales for January 2012 have revealed a significant return in confidence for home buyers. But with that renewed confidence should come a forewarning for home buyers about how to make the most of preparations of savings records, wages and stability through matching it with a credit ‘clean up’ for easier finance approval.

By Graham Doessel, Founder and CEO of MyCRA Credit Repairs and www.fixmybadcredit.com.au

According to AFG (Australian Financial Group), mortgage sales for January 2012 have soared above figures for last year. It released its AFG Mortgage Index last week in which it showed national mortgage sales increased by 40% this January compared to last year. AFG says the changes mark a return to more normal trading levels.

Sales in Queensland were up 80.6% and in South Australia 84.5%, with other states showing significant uplifts compared to January 2010 ? WA (+ 37.4%), Vic (+25%), NSW (+14.5%).

January also saw WA take over from NSW as the most popular state for First Home Buyers. Almost one in five new mortgages (19.1%) in WA was arranged for First Home Buyers compared to 14.0% in NSW. Through the second half of last year, NSW led the country as the most active First Home Buyers market.

However NSW retains its position as the most popular state for investment, with 40.2% of loans there arranged for investment purposes, compared to 36.8% in Victoria, 34.9% in Queensland, 32.6% in Western Australia and 32.0% in South Australia.

Although confidence might have returned, there will still be a significant number of home buyers who fail to realise their home ownership dreams due to a bad credit report. It is estimated there are approximately 3.47 million Australians who have a bad credit rating (negative listings on their credit file). (Veda November 2008).

As credit repairers, we meet many people who seek help to fix credit problems, and astoundingly, many of those people should qualify for a home loan. It may surprise people to know that many prospective borrowers we see have significant savings records, or even currently own property and have good income. They can be knocked back for finance by a bad credit history that should not be there.

Do you need a credit clean up?

Many credit files contain errors or inconsistencies due to simple human error from creditors, or from creditors simply not complying with credit reporting legislation. Often it is not until people apply for a home loan that they find out about them. Even if people already own property, they can be banned from refinancing, investing, or from upgrading their home due to credit rating defaults or other credit file problems.

Any negative listing – from defaults, to Judgments and even excess credit enquiries will stop most people from getting a home loan in this market, or force them into a high-interest loan, costing them thousands more in interest.

Negative listings remain on a person’s credit file for 5 -7 years, depending on the listing type. These black marks can show up for outstanding bills as low as $100.

Credit file errors

A survey by Choice Magazine as far back as 2004 points to approximately 30% of the credit files in the survey likely to contain errors. That’s a staggering amount of credit file errors potentially out there.

Recently Channel 7’s Today Tonight interviewed Veda Advantage’s Head of External Relations, Chris Gration on the possible number of errors on credit reports. He admitted errors within their system alone amounted to 1%.

“We give out about 250,000 credit reports to consumers every year. But only in 1 per cent of cases is there a material error on the file, so a default or an enquiry that’s incorrect,” Mr Gration told Today Tonight.

Even if as little as 1 per cent of those 14 million credit files contained errors, that would still currently leave 140,000 credit files in Australia containing errors that just shouldn’t be there.

The nature of credit reporting is that there is much opportunity for human error and these errors are usually not uncovered until people go about checking their credit file. Often people are unaware of their responsibility to maintain the accuracy of their own credit file – and so they don’t find out about their credit issues until they apply for a home loan.

Then, once people find problems with their credit file – they often find the process of removal of errors from their credit report difficult.

What is the best way to fix credit problems?

Current legislation does allow people to have inconsistencies removed from their credit file, but in reality many people are not successful when they attempt to fix it themselves.

Often it is because they are not schooled enough in the legislation or can’t devote the necessary time to it to ensure a successful credit repair. Sometimes people who attempt to fix credit problems themselves can do more harm than good through lack of knowledge, or difficulty in negotiating with creditors or by alerting them too early to mistakes on the credit file.

A borrower’s credit file is one of the key factors to home loan approval. People should not underestimate this factor.

Make it right with a credit file check and credit clean up before you apply for a home loan

It is important to get it right, and the onus is on the credit file holder to maintain its accuracy. House hunters can and should request a free copy of their credit file every year from one or more of the credit reporting agencies such as Veda Advantage, Dun and Bradstreet or Tasmanian Collection Services (TASCOL) if Tasmanian.

A free copy of their credit report will be mailed to them within 10 working days. A creditor may have place a negative listing with all or one of these credit reporting agencies. If there are any inconsistencies, they should seek a reputable credit repairer for a credit clean up.

ABS Statistics differ

AFG statistics are currently projecting significantly more confidence than the latest data from Australian Bureau of Statistics figures shows, particularly in Queensland.

The November Lending Finance Statistics show the number of owner occupied housing commitments in Queensland stayed flat in October to November, recording a 0.0% change in Queensland.

We will watch avidly to see if data from AFG matches with the ABS’ review of January housing finance and lending statisitcs due out in March.

For brokers, agents and property owners – rising mortgage rates in many states and particularly in post-flood ravaged Queensland, would be very good news indeed.

Image: Danilo Rizzuti/ FreeDigitalPhotos.net