Queensland is according to those in the know, still experiencing the economic implications of disaster following the recent floods. Ratings agency Fitch has released its latest study which still shows the State as the worst-performing in the nation. We look at why this may be occuring, and the ramifications of mortgage delinqency for the credit file.

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

A mortgage ‘delinquency’ – is classified as such when a borrower is at least 30 days behind in repayments. According to Fitch, Queensland has more delinquencies than any other state in Australia.

According to The Australian yesterday, Queensland has six out of the 10 worst-performing regions in the nation led by Ipswich, Gold Coast east and west, Logan City, Caboolture Shire and the Sunshine Coast, which has experienced major property market “volatility”.

It also reports Queensland has the highest rate of 90-day delinquency in the country (mortgages about to default) – that rate is 0.78 per cent vastly more than the national average of 0.63 per cent.

Fitch analyst James Zanesi said the Reserve Bank’s interest rate cuts in May and June would help ease the mortgage stress but the benefits were yet to be felt by home owners.

Fitch estimates there is a four-month lag between rates being cut and troubled mortgages starting to improve.

Mr Zanesi said the unemployment rate was one of the most important factors in directing the future of the property market and mortgage stress. The Fitch report showed the Western Australian market was performing well, with the state’s delinquency rate below the national average.

According to a story Borrowers Struggling in tourism areas in the Brisbane Times, the large proportion of Queensland arrears also has to do with investment and tourism in sea-side suburbs along the east coast.

Here is an excerpt from that story:

RP Data research director Tim Lawless said the biggest falls in the ”lifestyle” market had occurred in Queensland and NSW.

Prices of units in Cairns have fallen 22.2 per cent from their peak, while units on Victoria’s Surf Coast have lost 6.8 per cent.

”All these markets really have quite a similar performance in the sense that we’ve seen some material declines in values,” Mr Lawless said.

The ongoing sharemarket slump has also choked off housing demand from some Australian retirees, many of whom have deferred plans to retire on the coast, he said.

”All those people that were aspiring to put their feet up at the Gold Coast and retire, a lot of them are rethinking because they’ve seen a halving of their share portfolio and their retirement savings aren’t what they used to be,” Mr Lawless said.

The ongoing weakness in beachside regions suggests the poor performance of regional tourism is hurting the value of holiday home investments.

On the Gold Coast, for instance, Fitch analyst James Zanesi said many of the borrowers who were falling behind on their repayments were investors, rather than owner-occupiers.

”When house prices are going down you might have a borrower who is trying to hold onto a home because they don’t want to make a loss.”

For investors – a housing market slump can significantly hurt their chances of staying in the clear with their credit file. But it often comes down to decision making.

When property prices go down and buyers are scarce, many struggle with repayments. Add perhaps a little drop in employment in an area meaning perhaps rental rates come down when more people choose to live where the work is, and you have a property worth less, with no tenant or rental returns less than than forecasted. Many investors feel they are in a no-win situation – so they figure the best thing to do is wait and cross their fingers for improvement.

But just as I advise families struggling to make repayments on their residential home – burying your head in the sand about debts is never the safest option.
Anyone whose mortgage has gone into arrears has a serious problem if they can’t make the repayments. They have to look the situation square in the face – without pride getting in the way and make some tough decisions on what to do next.

For investors, it might mean cutting their losses and selling for less – yes less than what they purchased the home for. If the alternative is to suffer bad credit from mortgage arrears – then it can often be the kindest option. When the opportunity arises they can easily re-enter the property investment market without any credit blemishes. If they wait around for the bank to take the home, not only will there be defaults against their name, but there could also be a bigger debt from the bank once costs are incurred.

For those families struggling to pay the mortgage on their residential home, it is a similar issue. If the reason for arrears is simply due to unemployment or illness, the family needs to contact their lender and attempt to work out a variation on their repayments – preferably prior to any arrears – and certainly prior to a default. See more on how to apply for a financial hardship variation with your lender.

If the problem gets bigger, less temporary, then the best thing for them could be to sell. It is certainly preferential to going Bankrupt and having their credit history scarred for life. It is also better than facing 5 to 7 years without access to credit through having a default or similar listing noted on their credit rating.

Defaults – which are noted after a repayment is more than 60days in arrears effectively destroy a person’s credit rating for 5 years. They are not only refused a home loan, but most mainstream credit including mobile phone plans. It’s pretty serious.

Anyone who is finding it hard to meet mortgage repayments should contact creditors and attempt to work out a payment plan.

Most banks want to work with people to help them out of a rough patch. But if they fail to contact, and fail to pay, they will be defaulted.

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