Strategies Banks May Take During the Credit Crisis

Most home owners and property investors are wary of what measures the banks and finance companies may take to ward off a full depression and resolve the credit crisis. The following suggestions are typical of what is actually happening in some circles, and like most emergencies, it pays to be prepared. All of the measures are aimed at reducing further risk of home loan defaults - and are more in line with what they banks and finance companies should have been doing all along.

First Home Mortgagees

Most lenders are still offering 100% finance for their existing first home buyer customers. However, you may find:

1. The Loan Term may be decreased - example; 30 years to 20 years. The expectation is for clients to pay as much off as fast as possible, to build equity
2. Low Equity Fees may be higher
3. The minimum income requirement may be higher

Property Investors

1. If you are a first time investor, expect to pay a higher deposit such as 10% rather than the previously required 5%
2. If you are an existing investor - expect to pay a 20% deposit. (90% finance deals are no longer available if you already own an investment property. Few, if any, mortgagors will offer mortgages above 80%
3. If you are seeking over 80% lending - expect to pay principal & interest payments for any amount above 80%, rather than interest only on the full amount.
4. Large Revolving Credits maybe harder to get approved, lenders will approve lending the deposit on the basis they approve the purchase itself - even if you are getting the main funds from another lender
5. Expect more attention to the area of rent exposure - where you are earning less than the rental income. For instance, if your annual employment or business income is $85,000 but you have rental properties with a combined annual rental income of $105,000, this could be deemed rent reliance.
6. Expect much closer inspection of documents such as titles, valuations, proof of non-rental income, rental agreements and financial projections. This includes requests for finance from experienced existing clients who are used to gaining funds with low document presentation.
7. In some cases a fresh application and confirmation of all income streams may be required to assess for affordability and LVR [Low Value Rate] for residual loans.
8. Be warned, that with the additional processing, urgent discharges to perhaps stop a foreclosure may not proceed in the time frame requested. Most Bank require on average 2 days notice from solicitors of upcoming discharges.

Loan Discharges

Clients can also expect tightening up where seeking the discharge rental properties, due to selling it.

When a property is sold, the solicitor or investor submits a request to the mortgagor to discharge the mortgage. If a single property is seeking discharge, but the investor has multiple loans with the bank, the bank is likely to ask for updated valuations the remaining rental properties to ensure the new Loan to Value Ratio fits existing policy. If it does, they will approve the discharge. If it doesn't, based on revised valuations, the client will need to refinance with another lender OR not sell.

Much depends upon whether the existing loan securities are stand alone or whether all securities are cross collateral.

Even if the loan to value ratio conforms, clients on fixed interest rates for their loans may be asked for early repayment interest costs. This generally is a sum of per fixed rate loan plus any penalty interest costs.

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