Bank says no!

[Housemender]

Hi everyone

Our bank (international) has just refused to increase our line of credit and I'm a little unhappy - and also a bit worried about what's going on there! Here are the facts:

- We bank with well-known international bank with branches in Australia for about 6 years and excellent credit history.
- Investment property portfolio just valued by them at just under $1.8M
- Current borrowings with them $1.1M.
- In addition to above, we've just bought a PPR for $560K (some of above equity will fund 20% of price)
- Each of us earn over $100K pa gross, no children, no other loans
- IP's currently cost about $200 pw, but once our last 2 renovations completed around Feb and rented at $200 pw each then we should be in pocket a couple of hundred bucks a week.

Anway, we asked bank to set up a line of credit using our equity up to our 80% LVR but they have said NO!!! We don't need to use the LOC credit now, but would be good to have for either renos next year or another property. No specific reason given by bank but mentioned the US credit crisis and that they are tightening up on lending and that we have high borrowings with them. Also mentioned that our IP's won't be positively geared until Feb next year (but we're currently only $200 pw short!) and said they might reconsider next year!! I can't see any affordability/servicability issues considering our incomes are quite good and the IP's soon positively geared.

I feel pretty let down and thought we had a good business relationship - to the extent that I've been considering moving banks but we can't move our IP loans as they're fixed for another year and too late to pull out of the new loan for our PPR as we settle in the new year.

Has anyone else encountered any similar problems recently? Could it have anything to do with the US and the fact they are very big over there? (they also mentioned all the senior management were all over from Asia last week!) If it could then that's a bit worrying! Or does it just get to a point that despite servicability and affordability they just get to a point when they don't want to lend above a certain $ amount??

Janie

 

[letiha]

I had some problems earlier in the year with the bank refusing to fund construction after approving the loan and signing documents for the land purchase.

My advice take your business else where.

 

[Nullagine]

Might it be due to your debt being around 30 times your after tax after expenses income?

 

[BayView]

Time to change Banks...again.

 

[toony]

<<<<- Investment property portfolio just valued by them at just under $1.8M
- Current borrowings with them $1.1M.>>>

I would be nervous too if i was the bank. The above is outside my comfort zone too. Do you really think prices will rise over the next 3 yrs?

 

[Gentle_Chief]

As a Banking Business Analyst I can relate to this issue well. This particular Bank might have had an over exposure to property and could have a recent Risk management Audit (carried out twice a year stringently) and control mechanisms have been placed. There is no reason it is "You" that they have said no to, it just seems to be alligning to their credit control policy. Take heart, you seem to be doing quite well, and remember Loyalty does not pay anymore in Banking!

Cheers,
GC

 

[Peter_Tersteeg]

$1.1M with a single lender would be outside of my comfort zone. I feel it gives them too much control over your finances.

Putting everything with one lender makes management easier and allows you negotiate better rates, but you do sacrifice a lot of freedom and can box yourself into a corner.

Finance is not all about the best rate. Flexibility to move forward is very important.

 

[buzzlightyear]

Janie,

Shouldn't be your serviceability, because I have more maginally more debt, on very similar income (only me however, not x2 like you). I don't have it all with one lender though.

A mortgage broker should be able to uncover which other financial institutions can help you out here. You may have gotten to the point of maximum exposure under this one bank. I think many PI's here have had the same situation occur. Not a show stopper. Good luck with it.

 

[Qlds007]

I am amazed at the response they are giving you.

I can think of a couple of major institutions who would bite your hand off for the business and would go to 80% LVR shaving the interest rate more than normal for such quality business.

I have to say as others have responded i would be looking to transfer your business elsewhere.

 

[Housemender]

Thanks everyone for your responses. Personally we feel very comfortable with our borrowings - but I won't go into that now as it wasn't the purpose of this thread.

Most of the replies have confirmed my thoughts so we will definitely look into changing banks - or spreading things over more than one. I think it could be hard to move before we come off fixed rates in a year's time, plus it's too late to go elsewhere for our PPR loan (settlement first week of Jan). May have to sit tight for a year.

Janie

 

[dreaming]

As a Banking Business Analyst I can relate to this issue well. This particular Bank might have had an over exposure to property and could have a recent Risk management Audit (carried out twice a year stringently) and control mechanisms have been placed. There is no reason it is "You" that they have said no to, it just seems to be alligning to their credit control policy. Take heart, you seem to be doing quite well, and remember Loyalty does not pay anymore in Banking!

Cheers,
GC

I think this sums up a lot of the problem, I have no real knowledge of banking but you only have to read the papers to see what a lot of banks must be facing with a far amount of worry.I also don't think it has anything to do with "you", so why not look at a local bank, once they see where you stand they may offer you some attractive deals to try for some more of your business.

 

[Sarah.Kinsey]

Hiya Janie,

You arent alone, I am seeing many people in the last 5 days get denied borrowings, what i have noticed is that lending institutes are going in 20% under when it is coming to property prices

e.g. a house next door to yours, exactly the same condition and style and land mass etc.. may have sold for $500,000 3 months ago, the lending institutes are taking 20% off, thus making your house worth $400,000.

This could mean they are viewing your property portfolio 20% under its 'actual' worth, if that is the case, my guess would be that is why they have denied the loan.

This has been the problem i am seeing with property deals 'falling' over atm, if i was you, i would call the lending institute and ask them what value they see your portfolio at....

Regards and good luck
Sarah

 

[mja]

Hi,

How about just take one property away from the mix, then the lender might be more willing to negotiate (it lowers their perceived risk as well).

We did this with ANZ. Had both properties with them. They wouldn't go over 80% LVR. I took our house away from them and gave it to Macquarie for a 90% lend. Went back to ANZ a month later and refinanced our inner CBD apartment to 95% LVR!!

It is a bit of a hassle to have multiple accounts over the place, but you have to ask yourself what you ultimately want.

-- MJ.

 

[toony]

Hi,

It is a bit of a hassle to have multiple accounts over the place, but you have to ask yourself what you ultimately want.

-- MJ.

TROUBLE. Do you really feel safe with 60-90% borrowings. Do you really think its sustainable that young couples need to have a $400k mortgage to live in an average surburb of Melbourne or Brisbane?

This cannot last forever. The more you borrow the higher the likelihood your whole porfolio will fall over like a pack of cards.

Just my conservative opinion.

 

[mja]

TROUBLE. Do you really feel safe with 60-90% borrowings. Do you really think its sustainable that young couples need to have a $400k mortgage to live in an average surburb of Melbourne or Brisbane?

This cannot last forever. The more you borrow the higher the likelihood your whole porfolio will fall over like a pack of cards.

Just my conservative opinion.

Hi toony,

Please don't try and compare my situation to young couples with $400k mortgages. I'm not in the same boat.

I don't think it's wise or sustainable for a young couple to gear up so high, because they haven't bought any time. If things go bad, what buffer do they have? They should be buying a property that they can afford in the first place.

I haven't bought property; I've bought time. By gearing up to 90%+ I have bought myself 5 years of time. The extra 10% over the standard 80% LVR is a buffer for me for any shortfalls. It also can be used as a deposit for another property.

So yes, I feel very safe.

-- MJ.

 

[toony]

Hi toony,

Please don't try and compare my situation to young couples with $400k mortgages. I'm not in the same boat.

I don't think it's wise or sustainable for a young couple to gear up so high, because they haven't bought any time. If things go bad, what buffer do they have? They should be buying a property that they can afford in the first place.

I haven't bought property; I've bought time. By gearing up to 90%+ I have bought myself 5 years of time. The extra 10% over the standard 80% LVR is a buffer for me for any shortfalls. It also can be used as a deposit for another property.

So yes, I feel very safe.

-- MJ.

You just sound like a personal version of Centro Properties. Highly geared, hoping prices will always rise. What if prices dont rise for a few years (lets say 5 yrs) and your buffer runs out?

 

[mja]

You just sound like a personal version of Centro Properties. Highly geared, hoping prices will always rise. What if prices dont rise for a few years (lets say 5 yrs) and your buffer runs out?

Ha.

I'll go broke with everyone else!

Then at least I'll have had a great time, not having to stress and worry about mortgage payments each week.

Seriously, I don't worry about stuff like that. I just focus on making money, rather than worrying.

 

[chilliaa]

Just playing devils advocate, but have you ever considered that that by the bank saying no, they are actually protecting your interests as well.
Maybe now is not the time to keep rapidly expanding. If you have $1.8 million 'in play' in the market then you should continue to enjoy future capital growth at a factor of more than 4:1 against the 'average house price'.

However if the market does go into a protracted downturn then you might just wish you had taken on the banks advice.

 

[toony]

Just playing devils advocate, but have you ever considered that that by the bank saying no, they are actually protecting your interests as well.
Maybe now is not the time to keep rapidly expanding. If you have $1.8 million 'in play' in the market then you should continue to enjoy future capital growth at a factor of more than 4:1 against the 'average house price'.

However if the market does go into a protracted downturn then you might just wish you had taken on the banks advice.

I totally agree.

 

[buzzlightyear]

Just playing devils advocate, but have you ever considered that that by the bank saying no, they are actually protecting your interests as well.
Maybe now is not the time to keep rapidly expanding. If you have $1.8 million 'in play' in the market then you should continue to enjoy future capital growth at a factor of more than 4:1 against the 'average house price'.

However if the market does go into a protracted downturn then you might just wish you had taken on the banks advice.

I totally agree.

I would argue that the banks are looking after their interests first, which may parallel with the interests of the borrower, but not necessarily.