All Topics / Help Needed! / Negative Equity: Can Bank ask you to put some money down?

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  • Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    Hi all,

    I wanted to know what happen if you arrive in a negative equity situation.
    Let’s say you have purchase a property at 90% or 95% LVR. Then market goes down and you owe more than what your property is worth.
    Can the bank ask you to pay down some money in order to go back to, at least, positive equity?
    Or the bank can’t ask you anything (As they would not know until going through a valuation anyway)?
    Is it something that is detailed on the loan agreement and we should take care of?

    Thanks,
    Eric

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    If they knew they could ask you to get the loan down to an acceptable level.
    But often they wouldn’t know. And they don’t really want to call loans in.

    Nothing you can take care of really. And the bank can ask anything they like.

    As you said, unless you are buying more property or refinancing there wouldn’t be anything to allert them of the fact.

    But I’d make an effort to get the loan down.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I don’t know if they could ask you to pay down the loan – like in margin call for shares- if the price dropped due to market forces. Not sure I have read anything in a loan agreement which states they could either. But if you are doing something to devalue the property – demolishing part of it et then you would be in breach of the terms of the agreement and they could then call in the loan.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    Thanks for answers, guys.
    I’m not in this situation, and I hope I never will, but I wanted to have visibility on this.
    Have 2 IPs today: IP#1 (500k at 80% LVR but fully offset), and another one recently bought (IP#2 @230k at 90% LVR)
    I’m keen to go to another purchase in the coming months, likely to be at 90% LVR again. So good to read that, in case the market would go down for one of them, I should not be asked to get the loan down, or at least, not at a time that does not suit me.

    Cheers,
    Eric

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Consider financing the 3rd IP at another bank to mitigate the risk that concerns you as the new bank will rely on estimates of the other 2 properties values. If you do the 3rd IP at the same bank they will have the most recent valuations on file and may require updated valuations if the LVR is over 80% and/or they have concerns on the current value?

    It also has the advantage of avoiding a concentration risk by having to many properties at the same bank. This is something to be considered seriously once you go over 3 IPs in my opinion.

    • This reply was modified 10 years, 5 months ago by Profile photo of Colin Rice Colin Rice.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    Thanks Colin.
    IP#1 & #2 are with different lenders but for IP#3, likely I will have to go with the same lender than my last purchase as I don’t live in Australia and and there are few lenders that allow loan for non-resident (for this level of LVR at least).

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Your welcome. Im guessing St George or CBA?

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    You’re right, it’s StGeorge.
    Does CBA also provide loan for non-resident (without too much hassle)?

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Apologies CBA will only accommodate ex pats working overseas not non citizens of Australia.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Eric

    There’s no need to limit yourself to the one lender because of your expat status – quite a few banks will lend to expats.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of FrenchChineseManFrenchChineseMan
    Participant
    @frenchchineseman
    Join Date: 2012
    Post Count: 20

    Good to know. Despite my username, I am an Australian citizen expatriate overseas…
    Do you know if CBA would go up to 90% LVR for expatriates?

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