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All Those Eggs In One Basket

The dangers have come home to roost for those who put all their loans with one bank, writes John Bolton

By: John Bolton

1 July 2022

In last month’s column I took a look at the way bank dominance across the mortgage lending market has started to bite borrowers in recent months.

Finding themselves particularly hard hit are investors who strayed down the treacherous path of putting all their loans with one bank.

Under new, stricter lending and servicing criteria, we’re seeing too many instances of banks claiming full proceeds of a sale (at the final hour) when they deem borrowers unable to service the rest of their debt.

And anyone wanting to split their banking now to avoid this worst-case scenario is likely to find themselves paying more for a solution – that’s if they can find one, with credit conditions as tight as they are.

It’s not a pretty picture.

So, if you do have all your lending with one bank – what can you do to protect yourself?

The harsh reality is, in the current environment, not a lot.

Typically, it’s a lot easier to solve a problem like this before things start to go wrong. So in many ways, it’s too late.

But there are a few things you can do, or at least be mindful of, to try and soften the blow.

Planning Ahead

People often forget that when you sell a property your bank will want to do a full re-assessment of your financial situation to decide whether they think you can afford the remainder of your debt. Find out early so you can adjust your plans.

‘There are a few things you can do, or at least be mindful of, to try and soften the blow’

That means you’ll have to submit a full mortgage application, statement of possession, proof of income, mortgage statements, you name it. The whole shebang. And all that paperwork, that process, takes time, right?

But it’s not uncommon for solicitors to only give the bank a heads up about a sale a week out from your settlement date, and that’s a problem because by that point it’s too late.

I’ve seen a few examples recently of people caught out, where banks have claimed full proceeds when they absolutely shouldn’t have, simply because they didn’t get this process underway early enough.

If you think it might be an issue, encourage your lawyer to send the discharge notice into the bank earlier. The key here is to be proactive, and engage with your bank early to determine whether you can keep any of the funds so you know what you’re dealing with.

Interest-Only Trap

You’ve got to remember there are two other points when a bank’s going to do a full re-assessment of your financial situation: when you buy (obviously), and when you come off interest-only.

The interest-only reassessment is something to be really mindful of right now, particularly given with falling house prices there’s a (previously unheard of) risk of inadvertently ending up over 60 per cent LVR.

There’s a hell of a lot of paperwork and hustle involved in coordinating interest-only extensions. So, increasingly, I’d expect to see brokers starting to introduce fees for this service.

Learning Curve

I’ve been shouting about the dangers of having all your lending with one bank for almost a decade now, and if nothing else I hope what we’re seeing in the market at the moment finally drives that home.

Anyone still tempted by the cheaper rates or bigger cashbacks that come with consolidating, don’t be. I promise you the risk of downstream consequences just aren’t worth it.

Particularly for older investors, whose working lives are getting shorter, you’ve got to be proactive. It is hard to borrow as you near retirement and the banks are only going to get more difficult as time goes on.

Work out your best strategy and make it happen early, because (as we’re seeing now) when things start to go wrong, it’s generally too late to find a fix.


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