Statistics show a significant increase in home equity as a contributor to household wealth. A clear credit file has never been more important.

The Australian Bureau of Statistics released some interesting statistics yesterday on the components of wealth in Australian households. The major contributor for rising wealth in 2010 is shown to be home equity. With more wealthy Australians owning investment property than ever before, it means they are richer than ever before.

Statistics show a 14% increase in household wealth from 2006.

“LEVELS OF HOUSEHOLD WEALTH

In 2009-10, on average, households in Australia held assets valued at $839,000, partially offset by average household liabilities of $120,000. After adjusting for changes in the CPI, the average household net worth of $720,000 in 2009-10 was 14% higher than in 2005-06, and 30% higher than in 2003-04.

Net equity in home ownership in 2009-10 averaged $297,000 across all households in Australia, and accounted for 41% of total household wealth. Superannuation was the next largest component of household wealth, averaging $116,000, followed by property other than the family home ($100,000).

HOME OWNERSHIP

The increased value of households’ equity in their own homes accounted for nearly a third of the 30% real increase in average household wealth between 2003-04 and 2009-10. The contribution that rising home equity values made to wealth increases in that six year period were similar for homeowners living in capital cities and homeowners living outside the capital cities, with the net equity in their homes increasing, on average in real terms, by $78,000 and $75,000 respectively.

Most Australians aspire to own their home, and home ownership rates are relatively high. In 2009-10, one third (33%) of Australian households owned their home without a mortgage, and 36% owned their home with a mortgage. For these home owners, the average value in 2009-10 was $531,000, up 15% on the CPI adjusted average in 2005-06, and up 26% on the value in 2003-04,” the ABS statistics show.

And it seems the richest were able to accumulate even more of the lion’s share over the past 4 years:

“DISTRIBUTION OF HOUSEHOLD WEALTH

Between 2003-04 and 2009-10, the share of total household net worth owned by the poorest 20% of households remained at around 1%. In contrast, the share owned by the wealthiest 20% of households increased from 59% in 2003-04 to 62% in 2009-10.

For high and middle wealth households, the primary residence was a very valuable and widely held asset. The average value of the family home for high wealth households was $813,000 (a third of their assets). With only $60,000 owing on these homes on average, equity in the family home accounted for 34% of the net worth of high wealth households, 95% of which owned their family home. For middle wealth households, slightly fewer (91%) owned the family home, but it was a more significant component of their wealth. With an average home value of $340,000 (61% of their assets) and $91,000 owing on average, home ownership accounted for 58% of the net worth of middle wealth households.

After the family home, other property was the next largest contributor (19%) to the net worth of the wealthiest 20% of households. With their net holdings averaging $420,000, these households accounted for 84% of all household wealth held in such assets.

Superannuation was the third largest component (17%) of the asset portfolio of the richest 20% of households. At $370,000 on average in superannuation, these households held 64% of all superannuation assets.

Wealth in business assets was highly concentrated in high wealth households. In 2009-10, 93% of the net value of incorporated and unincorporated businesses were held by the richest 20% of households, with $289,000 on average held by these households and accounting for 13% of their wealth.

In low wealth households, the contents of the dwelling accounted for the largest proportion (34%) of their assets, and for more than half of their net wealth. Vehicles accounted for 15% of all assets in low wealth households, but only 3% of middle wealth and 2% of the assets of high wealth households.”

What these statistics seem to clarify for us, is the massive difference owning property can make to a person’s future accumulation of household wealth. Simply by the act of buying property, people can benefit from rising equity, and increase their overall household wealth by as statistics show on average 30%.

So if people are not able to borrow for their own home they are missing the chances of receiving this benefit, and at the same time increasing their overall household liabilities through the payment of rent.

Approximately 3 million Australians* are blacklisted from getting a home loan due to a bad credit rating, despite some of these people being financially able to repay a mortgage.

We are not advocating those people who are unable to repay debt effectively go into even more debt, but there are thousands upon thousands of Australians who are banned from home ownership, or forced to pay huge interest rates on their home due to negative credit file listings that just shouldn’t be there.

It is not always cut and dried when it comes to credit file entries. Creditors continually make mistakes with credit files, and ultimately the potential home owner pays the ultimate price for that through credit refusal from the major banks.

According to a survey by Choice Magazine in 2004, as much as 30% of the credit files in Australia may contain errors. Adverse listings hinder a person’s credit file for 5-7 years, depending on the type of listing, so accuracy is vital.

With more than 14 million credit files in Australia (14 million files are held by credit reporting agency, Veda Advantage alone) – transferring those figures from the Choice study could mean possibly as many as 4 million errors currently exist on credit files in Australia.

Recently Today Tonight interviewed Veda Advantage’s Head of External Relations, Chris Gration on the possible number of errors on credit reports.

“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.

But in our view, 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.

Many people are often not aware across the board of their responsibility to check the accuracy of their own credit file, so many errors go undetected. Often it is not until people apply for credit that they learn they have an adverse listing on their credit file, but by then it is too late – they are generally refused a home loan.

To get the black marks removed can be a battle. When disputing any adverse listing, it is up to the credit file holder to provide reason as to why the creditor has not complied with legislation. Unfortunately negotiating with creditors is not always easy for the individual to undertake, hence the need has arisen for credit repairers, to close that gap and enforce the legislation which creditors are bound to comply with.

If people are eager to own their own home, have the wages and the savings, but are held back by credit file defaults, it would definitely be worth seeking advice from a credit repairer. In many cases, repairing the inconsistencies on a person’s credit file could lead to the removal of all negative listings, and the chance to apply for a home loan with a clean slate.

Image: ddpavumba / FreeDigitalPhotos.net

* 3.47 million negative listings in Australia, Veda Advantage November 2008