Global Recession is here - It's About Time -

Everyone is scared about the recession which is now finally here and will stay for around 3 years before we see a rise in share markets and property values anywhere in the free world.

Is this a doomsday prophecy? No, it's the reality of impacts due to both the share market and property sector seeing growth well beyond the standard 7 year cycle. For nearly 4 years these two markets have been powering on and the result is pricing and values which are falsely inflated. The catalyst has simply been the liquidity crisis which was sparked off in America and now the donimos are starting to fall as a consequence.

What this recession will do is provide a market correction in these and other sectors of finance and bring values to a level which is in line with real world results. Will this happen again? Absolutely, you can guarantee that we will see another recession time and time again. It is how we manage it from a personal and business perspective that will see us get through these tough times or fold like many are about to.

Check out this post here for a more detailed look into the recession and the next phase of the global meltdown. Some itneresting reading to be had.

Your Credit History - How can it impact you?

When it comes to credit files and what's on them, most of us really don't know. Suprising when you think that your individual credit file can dictate whether or not you are successful in getting a loan, even if applying for particular jobs which require a clean credit history.

Often I've worked with clients in obtaining finance for them, be it a home loan or a personal loan and often they are suprised to find that they're credit file has a blemish on it. What this means a lot of the time is that their application for finance has been knocked back, what's even scarier is that some of these clients have been knocked back for a default which was as small at $75.

A default is simply a bill from a service provider which was not paid, once it has aged for approx 90 to 120 days it is then listed on your credit file as a payment default. How easily can this happen? Far too easily, especially when it comes to telecommunications providers who are notorious in listing people as soon as they cross a certain time frame of non payment.

Here's a real life example for you, person A moves premises and simply forgets to advise their telco provider of their new address. By the time they settle into their new place, unpack boxes and get accustomed to their new surroundings a few months have gone by. All of a sudden they have been listed by their provider for non payment.

Is this the Telco providers fault, no! The onus is on the individual to ensure that all utility and other companies they receive bills from are advised of their current address.

There are some simple things you can do to ensure this doesn't happen to you, it's as simple as popping into your local Australia Post store and filling in a mail redirection form. The cost is minimal and you can have mail redirected for 3, 6 or 12 months. For the cost of this service as compared to having a listing on your credit file I believe it is worth every cent!!

When you have a default on your credit file, no matter how great or small the listing stays on your file for approximately 5 years. Let's take a quick look at how a default can affect you:

1. Restricted ability to obtain a home loan
2. If you do obtain a home loan you may need to get it through non conforming lenders who charge a higher interest rate
3. Potential to not be able to activate a mobile phone service (post paid service)
4. Impact on obtaining certain jobs which require a clean credit history

These are just some of the impacts that a listing on your credit file can have. Having bad credit is no laughing matter as the ramifications are far reaching.

Even if you do not have a default or a listing of any type on your credit file there is a record kept of every single application for finance, for example if you were to go to several different lenders for a personal loan and all of them performed a credit enquiry then your credit file will show all of these transactions.

Even though you did not obtain credit your credit file shows all of these applications, now the impact even this can have is that subsequent lenders will have a concern about your activity and in a lot of cases will refuse you credit based on high levels of applications.

To obtain your credit file with detailed information you can simply click here and order it online. It will be the best money you've spent in a long time and the information contained will actually suprise you.

Hope this has helped highlight the impact of having a blemish on your credit file and I invite you to ask me a question and I'll be happy to assist.

RBA Drops Rates - What does that mean for my Home Loan?

The RBA recently dropped its cash rate by a quarter percent and although this is a positive move forward it does little for someone with a home loan when on average the savings equate to around $40 per month.

The RBA have touted that they will be decreasing interest rates again a further 3 or 4 times across the coming 12 months, then and only then will the home loan market be able to breathe a sigh of relief. When the average person all of a sudden has a further $200 to $300 per month will the market start to grow again, these savings will help compensate for the higher cost of fuel and in turn day to day living.

There have been rumours that the RBA may decrease interest rates again prior to Christmas, now is this to help people with home loans? I don't believe so, the real reason this move would happen is to inspire some confidence in the general market leading up to the crazy Christmas shoppign season.

You see if people believe that they have more available funds because of home loan repayment savings then human nature dictates that the first thing one does is to go and spend it! This may sound insane but is it a ploy to inject some life into the struggling retail sector, if the RBA does decrease home loan interest rates then the most likely result would be a stronger Christmas trading season for all retailers.

The flow on effect of this is that jobs will remain in place and potentially grow within the sector itself. Mums and Dads will be happy as they are able to buy those items they couldnt afford a few months ago and the average Australian has a smile on their face.

When the general populous is happy then consumer confidence increases and this has an impact across all market spaces.

As far as the home loan market is concerned there is a long way to go before a real positive impact is felt through the RBA's decrease in interest rates, I forecast that this is at least 6-8 months and 4 decreases away.

When it comes to home loan providers and the property market there is still a dim light there although the tough times will remain for another 2 years at least until we see the growth truly come back.

For more information on home loand and other financial products please visit my website which is www.aussiewisefg.com.au and you can contact me there.

Global Liquidity Crisis & The Australian Home Loan Impact

Months ago we heard reports from the US about how lenders were impacted greatly due to the high level of defaults and the growing amount of mortgagee auctions. People were losing their home; they were crying out that the bank sold my home from under me. On the other hand the lenders were crying poor too saying they had to sell to recoup losses.

The reality of why this occurred lays equally on both the lenders and the borrowers shoulders, firstly the lenders were providing finance to borrowers on a low doc basis (low documentation) where evidence of income is limited to non existent and also providing in excess of the homes valuation by way of borrowings. For example if a house were worth 300k the lenders would often lender 320k on the property.

This would leave the borrower in a negative equity position along with the banks!

In saying that, some responsibility must be taken on the borrowers behalf as well. Common sense should prevail but rather than do some basic math on what’s owed versus the value of the home, most borrowers would be happy to put themselves in a negative equity position.

Now there are many reasons that lenders did this ranging from keeping up with the Jones’ and having that new SUV or Plasma TV to borrowing good money after bad to continue to make home loan repayments which simply created a vicious cycle of debt on debt.

The one question many forgot to ask is ‘Can I actually afford this?’ it’s also a question that the lenders should be asking too.

Many months down the track, the ramifications of these poor lending practices are being felt around the globe. In particular the Australian market has suffered a major slow down in the property sector with interest rates increasing and lending policies tightening up dramatically.

This is not such a bad thing although people are asking ‘Why are we suffering because of what the US lenders did?’ This is a fair question to ask too, with the answer not being as clear as one would think.

The reality of why there is a global liquidity crisis is that because if the actions of US lenders and their lending policies the securitised lending market has collapsed. Securitised simply means that an investor has cash funds they are willing to invest which will be secured against property.

The direct impact of the US property and lending crash has seen investors flee the market and the ones who remain have placed strict parameters on whom, where and how much they will lend. From an investors perspective this is a logical way to react and I personally would be doing the same thing.

So how come it has affected Australia’s lending policies and home loan market? Simple, funds which were once available to invest in securitised lending are now all but gone, this has restricted the options available by second tier and non bank lenders. The funds which are available to the market nowadays is coming at a higher cost based on perceived risk which has been driven by the negative US economy and in particular the home loan and property market there too.

My company has seen these changes occur over several months now with many non bank lenders and mortgage originators closing their doors and or merging with other companies to maintain economies of scale.

Unfortunately the home loan market and Australian borrowers are suffering as a result with the impact of higher interest rates and reduced capacity to borrow as a direct result of this. As a flow on the property market has slowed down although we are not seeing the regression we had during the ‘recession we had to have’ in the early 90’s.

There are signs of life again and in the next blog I will be touching on these signs and highlighting areas to look for as an indicator to better times ahead.

For information on home loans and the latest interest rates hop onto my company website which is www.aussiewisefg.com.au and stay tuned to my regular blogs for updates on the financial state of play.

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