Negative Equity: Can Bank ask you to put some money down?

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FrenchChineseMan
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@frenchchineseman
Join Date: 2012
Post Count: 20
May 10, 2014 - 3:45 pm
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
Catalyst
Participant
@catalyst
Join Date: 2008
Post Count: 1,404
May 10, 2014 - 5:44 pm
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.
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
May 10, 2014 - 7:42 pm
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
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
FrenchChineseMan
Participant
@frenchchineseman
Join Date: 2012
Post Count: 20
May 10, 2014 - 8:52 pm
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
Colin Rice
Participant
@fms
Join Date: 2011
Post Count: 338
May 11, 2014 - 4:10 am
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, 6 months ago by Colin Rice.
Colin Rice | CDR Finance
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FrenchChineseMan
Participant
@frenchchineseman
Join Date: 2012
Post Count: 20
May 11, 2014 - 4:54 pm
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).
Colin Rice
Participant
@fms
Join Date: 2011
Post Count: 338
May 11, 2014 - 10:33 pm
Your welcome. Im guessing St George or CBA?
Colin Rice | CDR Finance
http://cdrfinance.com.au/
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Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
FrenchChineseMan
Participant
@frenchchineseman
Join Date: 2012
Post Count: 20
May 11, 2014 - 10:50 pm
You’re right, it’s StGeorge.
Does CBA also provide loan for non-resident (without too much hassle)?
Colin Rice
Participant
@fms
Join Date: 2011
Post Count: 338
May 12, 2014 - 12:34 am
Apologies CBA will only accommodate ex pats working overseas not non citizens of Australia.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
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Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Jamie Moore
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@jamie-m
Join Date: 2010
Post Count: 5,069
May 12, 2014 - 10:07 am
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
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FrenchChineseMan
Participant
@frenchchineseman
Join Date: 2012
Post Count: 20
May 12, 2014 - 10:29 am
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?