Hi Guys.
Have a friend who purchased house and land package in Penrith. He went with a smaller bank ( Adelaide bank I think) . Its a new estate with a new type of building in the area ( Terrace style which is unique to penrith) . The valuation came in lower for the build although the Land val was fine. Other people who bought with bigger banks have had no issues with Val. The build hasnt statrted yet. Normally this wouldnt be a problem as he could go somewhere else except for the following , he has fixed his loan on the land for 2 years !!
Now, I was wondering who would be at fault here.
1) The broker giving the advice to fix the loan
2) The bank who should have known it is a house and land package and shuoldnt have approved finance for the land without the build.
They are now asking for him to add an extra $40k which isnt small change.
Considering everyone elses Val stacked up and the bad advice, does he have an legal options here ?
I have advised him as a last resort to do a guarentor on the loan if he can although he didnt want to go that path yet.
Generally it’s adviseable to put the land + construction finance in at the same time, to avoid these issues – though usually it’s the land coming under, as opposed to the build. The 2yr fix is going to act as a further anchor.
Did he pay LMI? If he settled on the land recently and his fixed rate reflects the current ADL bank rates available, he *may* be able to exit his fixed rate without cost, refinance to an alternative lender who will accept the H&L value.
If he can’t break the fix without substantial cost, has already paid significant LMI or a combination of the two, he’s in between a rock and a hard place.
I think he may have paid a 10% deposit on the land. He also had to pay stamp duty as the land registration has taken so long (he is FHB)
The land has apparently gone up $20k according to Val. Its the build that is the problem.
Should his broker have entered the deal as house and land? I think (apparently) he has done that. Is it then the banks fault for allowing the deal to be written for only land
Surely there is some duty of care along the way from someone?
If the other buyers Vals have all stacked up wouldnt there be a way to dispute his Val?
I wouldn’t say it’s necessarily a case of breaching duty of care, but a bit of poor forethought on the brokers side perhaps.
There are plenty of reasons why a person would source finance for a vacant block of land, I wouldn’t expect a bank to refuse finance based on potential issues moving forward for construction.
If the block value has gone up 20k and the lender is still requesting a further 40k, something doesn’t stack up. I’d take the guess that due to the limit current stock available of that type, they are having difficulty finding comparables. Are the $ per sqm meeting market averages?
It might be of value requesting a *new* valuation from the lender, particularly if you can find comparables which support the market value – these need to be sale prices however.
If the land has gone up by $20k but they’re still requesting an additional $40k deposit – that implies that the construction component was severely undervalued.
First option is to challenge the valuation. Try and find three comparable sales (which could be difficult) to support a higher valuation.
Second option is to to order an upfront valuation with a couple of different lenders. If a different valuer is assigned – a different result might be the outcome. In this instance, your friend should be able to proceed albeit with high break costs with ABL.
To anyone reading this – DON’T fix a land loan when you’re planning to build later on. Keep it variable so you still remain some flexibility for these sort of scenarios.
thanks again for the replies so far. I have sent my friend these. As it is all new he is yet bto confirm with the bank if the deal was put in as a house and land package. Its a new estate in penrith so I cant see while it wouldnt have been done like that.
Seems unusual that no one else has had an issue with Val as yet.
Now, I was wondering who would be at fault here.
1) The broker giving the advice to fix the loan
2) The bank who should have known it is a house and land package and shuoldnt have approved finance for the land without the build.
They are now asking for him to add an extra $40k which isnt small change.
Your mate is at fault. People should take responsibility for their actions! Put it down to a learning experience. it doesn’t seem like the bank has declined the loan, just that he needs to contribute more cash
Hi Terry.
I will have to disagree with you there. People employ “professionals” and I use the term loosely for some people , to guide them through this process ( and other complicated things like insurance and accounting) and provide them with quality advice and limit risks.
What good are brokers if they arent helping the client avoid issues like this?
Are they there to just fill out paperwork? Some brokers get generous commissions for the life of the loan and should be providing value for the financial benefit they receive.
From what I know is they havent declined the loan , just the build portion .
As Terry said the buyer is responsible. HE made the purchase without a backup.
When you buy a product that won’t be finished for 2 years NO-ONE can guarantee how much it will be worth. That is why the buyer must take care not to over extend themselves. The boker is there to set up the finance (and he did that). He can’t control the banks.
Small banks (and others for that matter) don’t like to have to many properties in one area (or complex) as it puts them at risk. Maybe that is one of the reasons for the low valuation?
They should be able to provide information regarding why the build val has come so far below, especially with regards to price per sqm. Request info regarding this and find comparables to reflect the val your friend needs.
Everything else is just static, it’s unfortunate that it’s happened – time to resolve things now.
Hi Terry.
I will have to disagree with you there. People employ “professionals” and I use the term loosely for some people , to guide them through this process ( and other complicated things like insurance and accounting) and provide them with quality advice and limit risks.
What good are brokers if they arent helping the client avoid issues like this?
Are they there to just fill out paperwork? Some brokers get generous commissions for the life of the loan and should be providing value for the financial benefit they receive.
From what I know is they havent declined the loan , just the build portion .
Yes I agree, a good broker would have avoided this. But it is a great step to try to pin any blame of negligence on that broker. I am a broker and at various industry sessions it is amazing to see the basic level of knowledge of brokers.
Hi Terry. Yes, that is the point I am trying to make. A good broker wouldnt have had this issue. I believe a broker should be able to advise their clients after understanding their needs what they should and shouldnt do. I have spent the best part of 10 years in the real estate and insurance industry and all too often see negligible advice given to people who put their complete trust in these professionals.
And to reply to Catalyst, I think you may have read the thread properly or may be making a different point. The build wont take 2 years . The loan was fixed for 2 years. The build is ready to start and will be done in approx 6 months but the bank wont finance the build.
In normal circumstances a broker would take the business elsewhere. ALthough the loan is now fixed, hence the issues
I would be interested to know the numbers here, because it sounds like quite a variation.
I will add a bit to the discussion about who is at fault.
– There are good and bad brokers, but a bad broker doesn’t mean he’s a (grossly) negligent broker. Just like any other occupation – surgeon, lawyer etc there are variations in skill set. When using a broker you don’t have to know everything that the broker knows, but you need to do your own due diligence to ensure that he is a good broker and the advice given is sound – those are things in your control. In this case, I would be interested to know what your friend did in regards to due diligence to determine the quality of the broker? My guess would be that it wasn’t too much… and that’s likely the root cause of the issue.
Sounds harsh, but I do hope he gets out of it. Going for a reval with the current bank, or moving banks sounds the best bet.
This reply was modified 10 years, 4 months ago by TheNewGuy.
Is this ABL direct or through a mortgage manager ie an online or indirect channel of ABL?
If it’s an indirect channel than ABL has a $20,000 credit card they can provide to your friend for any short falls at home loan variable rates for the life of the loan.
2nd option is to get a copy of the val and find out where the valuer is depreciating the construction cost…i have a feeling your frds construction quote has a lot of modification and adjustments – adjust the quote as required and make the mod later on if possible ( ie for some reason Heated floor tiles is a must and that’s like $15,000 in mod…)