Bank playing tricks when you want to build

[BV]

I wonder if someone can help with this.

I have reached my serviceability level with STGEORGE.
I called them up and discussed the possibility of selling a
property to finance the construction of another.

The problems I came across is this
The moment I sell the property the bank's security decreases so they
want my loans reduced to 80% of the value of the remaining properties.
So they send the valuers out and determine what 80% is
and I give them some money back and reduce my loans.

Now I want to demolish one of the remaining houses and build
and I ask for the bank's approval. Again they send the valuer out
to determine the value of the land this time and again I am ask to
reduce my loans even further.

These reductions are very annoying because I am spending money that
I wanted to keep aside for a rainy day or to use as a deposit for my next IP.

The lending officer I talked to said they won't accept the construction
money as security and they want a term deposit instead.
They also want me to pay the builder direct with leftover money from the
sale.

Has anyone been in the same situation before and if so
how did you work around it?

Thank you in advance.

 

[crest133]

New chum muggins here might be missing something, but, when you sell a property under mortgage to St George, you have cash which St George values at 100%, not 80%. If they hold it in say cash management at call at 5.5% their current rate for over $100K, why can't you borrow 100% against it. Do they want to finance the growth of your property portfilio, or not ? I've just jumped into bed with St George, so I'd love to know the outcome. If they're not interested in funding your expansion, i'll be asking my relationship manager a few questions for my own benefit.
maybe I'm missing something here, but i can't sit around nodding when i could be posting something stupid and learn from the subsequent abuse.
cheers - hope they do better
crest133

 

[BV]

Hi Crest,

Yes, If I put in some money in a term deposit so that at all times
STGEORGE have 20% of property values as security then they
would consider leaving the loans as they are.

This requirement limits my cash reserves but most importantly its
stoping me from selling into a trust so I lose control of the asset,
and ofcourse a term deposit is seen as a waste of money as I would
be getting an after tax int. rate of about 3% and I will be paying
STG a non deductible 6.6%.

The other problems is if I let my loans fall below 500K
they can turn around and increase my interest rate.

I think the lending officers are very green in this area
themselves. They always put me on hold and going away
to discuss it with their manager.

Hopefully someone in the forum would have come across
this problem and can give me some advise.

Cheers

 

[Jamie]

I think the lending officers are very green in this area
themselves. They always put me on hold and going away
to discuss it with their manager.

Hi BV,

Have you considered using a good broker? They may be able to show you another lender with less restrictive parameters, or a way around your dilemma if you choose to stay with St George.

Just a thought,

Jamie.

 

[Smile]

Now I want to demolish one of the remaining houses and build
and I ask for the bank's approval. Again they send the valuer out
to determine the value of the land this time and again I am ask to
reduce my loans even further.

Ask if they can revalue the property with the proposed new construction on it
If you get a fixed price contract for the construction from a builder it should be OK.

Again they will only lend up to your serviceability limit!

 

[BV]

Hi BV,
Have you considered using a good broker? They may be able to show
you another lender with less restrictive parameters, or a way around
your dilemma if you choose to stay with St George.
Just a thought,
Jamie.

Thanks Jamie
I have exchanged e-mails with Rolf L a few times
He knows my situation very well, and hopefully he will have some
ideas on this.

I have considered refinancing but mixing different lenders
in this deal is a problem.

I also don't want to borrow too much
so selling a property seems like a less painful option.
Its the PPOR I consider selling so there is no CGT.

cheers

 

[BV]

Ask if they can revalue the property with the proposed new construction
on it. If you get a fixed price contract for the construction from a builder it should be OK.
Again they will only lend up to your serviceability limit!

Hi Smile,
Thats an interesting idea, I will call them up again.
Thanks

 

[BV]

I called up the bank again and they would revalue
with the proposed new construction on it but only
under a construction loan scenario and I don't meet
serviceability for this type of loan.

So I will have to finance the construction with the money
I get from the sale and will be forced to leave money in a term
deposit as security.

This ofcourse limits my options particularly as I was thinking
of selling to a fam. trust and will only have access to 80% of
the money.

The alternative ofcourse would be to put the property on the
market and I hate doing that...

Any more ideas anyone??

cheers

 

[JumJones]

Can you use a cash bond against some of your equity to provide an extra income stream, improving your serviceability?


oops - or will that stuff your lvr anyway?

 

[BV]

Can you use a cash bond against some of your equity
to provide an extra income stream, improving your serviceability?
oops - or will that stuff your lvr anyway?

Hi JumJones
I am not sure if a cash bond would help in my situation but I will find out.

In the meantime, I have nearly run out of options
I am dissapointed with the knowledge bank staff have
on lending and loan restructuring issues and I am more dissappointed
that they haven't got a proactive approach to try and work around
tiny little issues and find solutions.

Out of coincidence the STGeorge customer service
manager called me at home tonight to find out if I was happy
with their service.

I gave her the bad news and tomorrow I am going to call
the customer relations manager for more...

cheers

 

[crest133]

Since the scenario exceeds the expertise of your current liaison person, then they are inadequate, and you are not receiving the service you expect.ask to deal with the one they scuttle off to.
good luck, hope you crack the stone.
cheers
crest133

 

[BV]

Since the scenario exceeds the expertise of your
current liaison person, then they are inadequate, and you are not
receiving the service you expect.ask to deal with the one they scuttle
off to. good luck, hope you crack the stone.
cheers
crest133

Crest,
It seems like they have specific guidelines associated with every
product they sell and they can't deviate from these.

They won't revalue with the proposed construction on it
because that rule applies to construction loans
and they are not giving me a construction loan.

Ok but I have the funds to build and I can also put the rest
of the money in a locked offset account so LVR will be <70%
and I will also have money to build.

""No sir the security will have to be a term deposit
and it won't be offsetting the loan. We don't offer it like that.""

So basically these are the rules take it or leave it.

cheers

 

[crest133]

Thanks BV, hope the answer is on the way.
cheers
crest133

 

[juzz]

Dont know if you want to touch the private finance sector & Solicitors finance for construction. The rates are higher. Structures can be negotiated. But you should be able to avoid selling & build as well. Just your proposed profit margins will be hit.
Leverages can go a little higher than the banks & servicability usually not considered using water tight entry & exit strategy for the lender(s).

Justin

 

[BV]

Dont know if you want to touch the private finance sector & Solicitors finance for construction. The rates are higher. Structures can be negotiated. But you should be able to avoid selling & build as well. Just your proposed profit margins will be hit.
Leverages can go a little higher than the banks & servicability usually not considered using water tight entry & exit strategy for the lender(s).

Justin

Hi Juzz
Thank you for your suggestion I looked at constructions loans and found
them expensive so I am trying to avoid them.
I actually know how to achieve my goals using LOC and a professional
loan @ 6.5%.

For the benefit of all I will explain.

I will buy Mrs BV's 50% of PPOR while refinancing with another lender to
access 80% of PPOR value.
The bank (lender A) that has security on the property will want to have
some funds in a term deposit to allow the release of the PPOR.

So lets say I put 40K in a term deposit to keep them happy.

Now PPOR is released and I have money to build.
These funds will be placed in an OFFSET account and will be used to pay
for a 2nd security deposit (70K) that will be required to allow for the
demolision to take place and to pay for the construction till close up stage.

I will have to request a revaluation to release some of that money (40K)
and will revalue the place again in the end to release the rest of the funds(70K).

The released funds will be kept in an offset account and will be used as a
deposit for another IP later when my serviceability improves.

The numbers above are approximate and will vary up or down depending on
the valuations. The figures are a little tight during construction but at close
up stage I will be able to breath again.

I haven't found a simpler or cheaper method to suit my situation but the
important thing is I won't need to sell and I won't need to refinance
after construction.

Interestingly enough an employee of lender B told me that since the funds
that are going to be used for the construction are going to be with lender A
I won't need to tell the bank (lender A) that I am going to demolish the
house. Somewhow I don't think that this is correct and I am not willing to
take the risk.

cheers,

 

[Aceyducey]

Hey BV, looks like you've got yourself well organised - good luck with the development!

Cheers,

Aceyducey

 

[juzz]

Hi Juzz
Interestingly enough an employee of lender B told me that since the funds
that are going to be used for the construction are going to be with lender A
I won't need to tell the bank (lender A) that I am going to demolish the
house. Somewhow I don't think that this is correct and I am not willing to
take the risk.

cheers,

BV

This will probably be an insurance concern to the lender. If they find out the
purpose of the funds is for construction they'll possibly thow the loan into a different category, if they don't know they could possibly recall the loan if they find out.
I've seen similer strategies that you have and they can work.
But better to have some extra safety measures in place incase they come unstuck. ie Banks can go and ask for extra securities or give you a margin call at any time, unlikely, but they can.
It might be wise to have prepared a backup plan. ie Overrun of costs can happen and usually do. Builder variations - nealy always happen.


Juzz

 

[BV]

Thanks Guys,

cheers

 

[BV]

All went as planned....

I did refinance with lender B while buying my wife's 50% of PPOR.

I had to reduce my loan with lender A by 63K to allow the release of the
PPOR. I now have sufficient funds to build the new house and enough
money left over to use as a security deposit.

Lender A is happy to let me demolish the old house but they want to have
48K locked in a term deposit account while I am building.

The alternative would have been to reduce my loan with lender A
by 48K but I didn't want to do this.

cheers