More House Owners Default On Their Loans
The Age
Sunday September 3, 1995
Many borrowers who took out highly geared, low-rate loans are in trouble. Higher rates and property stagnation add up to negative equity, writes Lisa Pickersgill.
STRUGGLING to cope with higher mortgage repayments? You are not alone. Creeping interest rates have inevitably led to more home loan defaults. And the lack of significant residential property price movements means the lender's last resort repossession may not be sufficient to wipe out the debt.
Paul Vorbach, of Personal Mortgage Consultants, says anecdotal evidence suggests that home loan defaults are on the increase.
Intense rivalry among lenders, particularly during the low- rate environment of 1993-94, encouraged many borrowers to secure loans valued at up to 95 per cent of the price of the property, he says. With higher interest rates and only slight property price movements, some borrowers would have negative equity, he says. Anybody who did not anticipate the rate movements may now be bowled over by the increase in loan repayments.
If you are having trouble making repayments, do not panic, says Vorbach. ``Approach the lender sooner, rather than later, " he says. Often, they can be flexible and allow the borrower to extend the loan, pay by instalments or postpone the payments.
However, this varies with lenders and depends on the severity of the borrower's dilemma.
Ian Proctor, of the Consumer Credit Legal Service, in Melbourne, says borrowers should always notify the lender of any financial distress which could reduce their ability to repay.
Banks generally respond positively when you admit your difficulties as they are reluctant to repossess the property, says Vorbach.
If you are genuinely in trouble (for example, you may be seriously ill or unexpectedly lose your job)you will be able to renegotiate the terms of the loan, he says. If the situation is beyond repair and the lender decides to repossess the property, remember that it is almost always better to sell the house privately than through a forced sale. So try to negotiate this with the lender. If you believe the lender has been unfair, you could complain to the Australian Banking Ombudsman.
Generally, there are two types of complaints about foreclosure, according to Amanda Balderstone, of the ombudsman's office.
``Either the borrower believes the bank has not reacted quickly enough and the loan has since blown out. Or the bank has not allowed enough time for the borrower to refinance," she says.
George Kypraios, of the Real Estate Institute of Victoria, says the competition among lenders gives borrowers enormous scope to negotiate with potential suppliers of finance.
Proctor says there will be new avenues available to borrowers who have trouble paying their home loans when the national credit code is introduced on 1 March next year.
Under the new legislation, a borrower with a loan of less than $125,000 will be able to approach the independent Victorian Consumer Credit Tribunal after approaching the lender. But the complaint must be reasonable, he says.
© 1995 The Age