mortgage stressStatistics are pointing to an increase in distressed sales in some areas of Australia. We look at what’s happening in the property market. We also cover what you can do if you find yourself in hot water with your mortgage so you can prevent credit defaults, and especially – losing your home to the bank or to liquidators.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and

An alarming article showed up in Australian Broker yesterday, ‘Fresh data shows shocking number of distressed sales.’ The article revealed that nearly a quarter of all properties advertised in Australia are distressed sales. The upsetting figures were released by valuation group LandMark White. Here’s the rest of that article in full:

The research shows Queensland accounted for a massive 54% of properties advertised by a mortgagee, receiver or liquidator during the March quarter – and the Gold Coast recorded the highest number of distressed property advertisements in the country, with 74% of its listings made by a mortgagee, receiver or liquidator in the three months to March 31 – despite recent claims the region’s housing market is back on its feet.

 Nationally, most receiver sales were in regional areas, with residential property falling just ahead of the agricultural sector.

 LandMark White found almost 23% of properties advertised in Australia during the quarter were listed by a mortgagee, receiver or liquidator.

 Of those, 19% were in the residential sector, 16% in industrial and 15%  in retail.

 Nearly 10% were in New South Wales and 15% in Victoria.

 NSW saw the most positive change, as only 7% of all properties advertised in that state were listed by a receiver or mortgagee – a record low. By comparison, the proportion in the same quarter of 2012 was 31%, according to a News Ltd report.

 Although the distressed ratio in Queensland dropped by 6%, it remains high at 39% of all property advertisements in the state. Victoria saw the smallest improvement in the distressed ratio, with a drop from 20% to 19%, which meant that for the first time in the series, Victoria had a higher ratio than NSW.

What can I do if I am experiencing mortgage stress?

It depends on how deep the ‘do do’ is that you’re in as to what your plan of attack will be.

If you’re just struggling to make ends meet, but you are managing to keep up with payments (just) – then you might start looking around for a cheaper interest rate to give you a bit of savings. You could check with your bank or research other banks (but don’t make any credit applications until you’re sure) to see if you can find an interest rate that will reduce your repayments.

Sydney Morning Herald story Tell them to cut you a break, gives great advice on making the most of bank competition to grab a cheaper interest rate:

If your loan is with a big bank and you’re paying the advertised interest rate, you’re being ripped off. It used to be that customers who knew to ask could secure 70 basis points off that rate, but in recent competitive times, that discount has leapt to as much as 100 basis points.

 You won’t be able to get any reduction from one of the new breed of online lenders; it’s their cut-price rates that are forcing discounting elsewhere. But banks, and even some building societies and credit unions, will have wiggle room. The beauty of this information is that you could use it to make an instant saving with your lender, sparing you from having to remortgage.

If your struggle is more serious, and you really are having trouble finding money to make repayments each month, then it’s time to tell your bank. You need to do this before you default on your home loan, to ensure you are not penalised by a default listing on your credit rating. Despite this, if you are consistently late with your mortgage payments, this will show on your credit record from next year – so it is best to make paying your mortgage or any other bank-related credit an absolute priority to avoid that late repayment history from holding you back in the future if you get back on your feet.

How do I apply for a revised repayment schedule with my bank to avoid a default?

Firstly, you need to make it clear to your bank that you fear if you aren’t able to restructure your home loan repayments that you may fall into arrears. If you have a situation of temporary difficulty, such as unemployment, illness, injury or other reasonable issue which would mean making repayments will be difficult, this is essential to do. You will be requesting a financial hardship variation to your repayments. This may mean your repayments are reduced accordingly and the lender may take action to stop a potential default on your credit file.

Tips for Applying for financial hardship

– Work out what you can afford to pay prior to requesting a hardship variation. This would involve taking the bull by the horns and doing up a serious budget on what’s coming in and what your repayments are on all of your credit accounts. Could burying your head in the sand be the main reason why you find yourself in this situation in the first place? If so, it would be a great idea to seek professional help in managing your budget for your entire future. The best place to start looking for some help would be ASIC’s MoneySmart Website. If you feel like you’ll struggle across a number of credit areas in the short term – consider requesting a reduced payment for other credit accounts as well.

– Put your request in writing and keep a copy as a record.

– You may need to use the actual words “hardship variation” for your lender to officially recognise the request, and to avoid confusion as to what you’re asking for.

– Check your loan agreement as to the terms you entered into around financial hardship. Those agreements post-1 July 2010 have a clause which requires the lender to respond to you within 21 days.

– Creditors are legally required to consider a person’s request for variation on payment arrangements, but are not obliged to agree to any hardship variation proposal put forward. If a lender either refuses or fails to respond to your hardship request, you can lodge a complaint with their independent dispute resolution scheme, such as the Ombudsman they are a member of.

– Research how to apply for financial hardship. You can do this through ASIC’s MoneySmart Website, or through sites like Money Help, a website run by the Victorian State Government.

Is it time to sell the house?

If your financial situation is not going away any time soon – it may be time to look at downsizing your home or even renting for a while. “Gasp, shock, horror…weren’t you trying to save my home?” you say.

But having the power to sell your home at the best price in the current market is what you’re really trying to save. So it might pay to think seriously and clearly about whether you are going to be able to carry the loan long term.

If you end up at the mercy of any distressed sale, you may find the banks are only interested in getting back what they are owed on the property – and through lost time, or different sales tactics, you could find you sell for a lot less than you might if you had control of the sale yourself. So as hard as it might be, you could save your credit file, and save your family thousands by letting go now.

The above information is intended for general purposes, and should not replace getting considered and careful advice based on your individual circumstances. We recommend you seek financial counselling and or legal advice before making this type of financial decision.   

For help with recovering your credit rating following a period of financial hardship, or help with disputing credit listings which are holding you back from obtaining credit, contact a Credit Repair Advisor at MyCRA on 1300 667 218 to talk about your situation.

Image: artur84/


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