Townhouse H&L package with common wall

[bez23]

Hi all,

I have a friend that was put on a business loan secured against his unencumbered property for the build cost of his H&L property. The bank manager informed him that the best option available was a Business Loan because policy has changed in regards to building a property with a common wall using a residential loan and other banks are also adopting this policy and he would have had the same outcome once they tried to process it.

1) I reckon that it is BS and the bank manager is just trying to earn more commission.
2) Even if it is true, he could have just done a cash out from his PPoR for the build at residential rate.

What do you all think. The bank is BankSA.

Cheers

 

[Brady]

CBA have something similar but it's not that simple, bit more to it.

 

[Mick C]

Sounds like your frd might have a H/L "split" contract hence why the bank may not lend against the security or contract in this case.

Most banks won't touch a split contact, but on a case by case depending on how the contract are set out and the conditions the smaller banks and non-conforming would consider it at a lower LVR 70-80% at resi rate.

 

[Corey Batt]

Lenders won't lend against split contracts for purchasers anymore, as the valuer has to assign a $0 land val. This came about from a townhouse development where one purchaser was unable to complete their transaction, which stopped the other townhouses from constructing.

Developers are generally having to sell these developments as OTP now to get around this issue.

 

[bez23]

Yes, it might be a split contract. Doesn't make sense why the bank manager didn't just do a equity release at resi rates for the build though..

 

[AlmostBob]

Doesn't make sense why the bank manager didn't just do a equity release at resi rates for the build though..

Really, doesn't make sense ?

The bank manager didn't offer a cheaper product . . . when the the bank makes more . .
Bank manager. . . . [makes fart noise]Bohze Moi

Bank manager works for the bank
REA works for the REA
I work for me and nobody else does

 

[Redom]

Yep - others are spot on, most lenders wont touch split contracts, often forcing developers to sell this type of stock as off the plan purchases. It's mainly a counterparty risk issue from the bank - ie if the builder builds your townhouse, but not the others, then the value of your security wont be as much. Hence the policy shift to shifting this to off the plan where the developer carries the risk until closer to completion.

Pretty sure its a relatively new policy. I purchase a H&L townhouse in early 2013 with no problems.

Not sure about the bank manager - its difficult to fully comment without full information. It is much cheaper to borrow at resi rates and take path you mentioned though.

Here's a little bit more info on it in case anyone's interested.

http://www.api.org.au/folder/news/member-alert---residential-developments

 

[bez23]

Thanks guys. Do you know any banks that would refinance the business loan to resi before construction is complete? From what I know. Most banks will not refinance business to resi.

I guess just have to look for a bank with good cash out policy.

 

[Corey Batt]

Thanks guys. Do you know any banks that would refinance the business loan to resi before construction is complete? From what I know. Most banks will not refinance business to resi.

I guess just have to look for a bank with good cash out policy.

Does your friend have enough accessible equity to fund the entire H&L?

 

[Mick C]

1. If you have enough equity in current property; can just fund it via that security; standard resi ( option to refinance out and have the loan against the new property later if you want)

2. Ref the business loan AFTER the home is completed not mid way to a normal resi - this option will cost you >$2,000 more + higher rate during the build.
- Exit cost
- Refin cost
- Potential higher go cost ( The mortgage stamp duty for bus loans etc..)
- higher set up cost

 

[Marty McDonald]

Thanks guys. Do you know any banks that would refinance the business loan to resi before construction is complete? From what I know. Most banks will not refinance business to resi.

I guess just have to look for a bank with good cash out policy.

2 spring to mind

 

[bez23]

Thanks for the replies guys. Managed to get him a good discount on his business loan (5.55) for the time being, once construction is done, he'd leave the bank.

 

[Colin Rice]

Lenders won't lend against split contracts for purchasers anymore, as the valuer has to assign a $0 land val.

Done a couple of split contract H&L recently with St George without any common walls and where stand alone.