Is it possible for this to happen?

Say you brought a property for 300k, with a 30k deposit, and the market went down and your house is now only worth 250k. Is it possible for the bank to ask for more money so that you still have an acceptable LVR for the bank?

The reason I ask is that if you brought quite a few properties, and kept borrowing against their equity during a boom, you might be in a bit of trouble if values dipped for a few years and the above happened.

It may not even be possible, but it's something that crossed my mind when I was reading a post about boom/bust cycles.
 
Say you brought a property for 300k, with a 30k deposit, and the market went down and your house is now only worth 250k. Is it possible for the bank to ask for more money so that you still have an acceptable LVR for the bank?

The reason I ask is that if you brought quite a few properties, and kept borrowing against their equity during a boom, you might be in a bit of trouble if values dipped for a few years and the above happened.

It may not even be possible, but it's something that crossed my mind when I was reading a post about boom/bust cycles.
Short answer: NO.
 
If you purchased a multitude of properties, one would hope that you have:

a) not over extended yourself (LVR) so much that any dip would see a huge drop across your portfolio, and

b) if you've balanced out your portfolio well with a mixture of say +CF, -CF, neutral etc then you stand to be in a better position to weather any major market downturns.
 
They are able to do it contractually. They can even ask for the full amount at anytime in fact - all monies clause (?) or something similar.

In practice, for residential property, its not a material risk you would really need to worry about.
 
Remember the banks have the right to ask for the loan monies to be paid out to them at any time. Although they won't of course, because (bottom line) they want you to stay in debt for as long as possible, that way they make money.

Hence, why they won't ask for more money from you to reduce your LVR; they don't want that!!
 
Is it possible for the bank to ask for more money so that you still have an acceptable LVR for the bank?

They can & they do & they have done so. Especially if their client is on their radar in bad times - usually with loans over $1-2M with one lender.

That is why canny investors will only do 1 or 2 loans with one lender and more with others - to spread their risk around.
 
They are able to do it contractually. They can even ask for the full amount at anytime in fact - all monies clause (?) or something similar.

In practice, for residential property, its not a material risk you would really need to worry about.
Snap??!! :D

I don't recall the clause either, sorry. :(
 
They can & they do & they have done so. Especially if their client is on their radar in bad times - usually with loans over $1-2M with one lender.

That is why canny investors will only do 1 or 2 loans with one lender and more with others - to spread their risk around.
True, but the key is you have to be on their "radar" as not making payments, and especially if your borrowings are (as you rightly pointed out) in the millions, with the one lender.

Sorry I should have mention this is part of the balancing of your portfolio, equally as important to the other points raised, thanks Propertunity. :)
 
Thanks for the input guys!

Thanks for the tip on spreading the risk Propertunity. I'm going to buy my first and possibly my second investment property this year. During the initial period at least my LVR is going to be quite high.
 
Thanks for the input guys!

Thanks for the tip on spreading the risk Propertunity. I'm going to buy my first and possibly my second investment property this year. During the initial period at least my LVR is going to be quite high.
All the best healthgt350,

Be sure not to spread yourself too thin though. :)
 
It's called a "margin call".
They have done it, still do and will continue to do it in the future.

Though they are generally lenient on resi loans, many comm loans have recieved margin calls last few years.

I'm going to buy my first and possibly my second investment property this year. During the initial period at least my LVR is going to be quite high.
What a great idea! Fix a debt problem by borrowing more money...:rolleyes:
 
You are in default when the lender deems u are ......................

As Prop said, it has happened, and will continue to do so on a case by case basis.

So, manage the risk like u manage other risks Id say.

Happens DAILY with Commercial when the lender does a review and the deal is no longer to their liking.

Got a US based lender chasing a client for their dough back even though loan is in advance by 200 k, and the effective LVR is 45%. They want their money back for their reasons


ta
rolf
 
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