October 22, 2008

Are Bank’s Fair Weather Friends?

So what’s the experience like if you need to re-finance a loan or raise new money in the current economic storm in Australia or New Zealand?

Banks: Fair Weather Friends?

First off: this is not the US: NZ and Australia banks never really got into the crazy lending practices of North America. That said though it had got very easy to get 70% LVR (loan value ratios) without using anything but government valuations (desk-top valuations) in New Zealand. A standard loan of 80% was routine with a reasonable valuation and proof of income. Loans of over 80% were always more difficult and some lenders avoided them. But if you found the right lender you could borrow up to 100% without proof of income so long as you had a track record.

Interesting to see then ASB’s (NZ) bank’s latest update of their lending criteria:

Changes to Maximum LVR for Low Doc & Investment Property Lending
> Low Doc Lending now discontinued (was 80%)
> Investment (Rental) Residential Dwelling:
> Stand alone security Maximum LVR 70% (was 90%)
> Supported by owner occupied security Maximum LVR 80% (was 90%)

Other borrower’s are finding that smaller lenders have disappeared leaving their loan sold to one of the mainstream banks. Smaller non-bank lenders such as GE Money have stopped offering fixed rate loans. Most of these lenders source their fixed-rate lending overseas and the dryng up of global credit plus the rapid depreciation of the dollar means that fixed rates just aren’t worth the risk. This can leave the borrower in the position of having to pay a break fee to leave the lender within the first 5 years of the relationship or go to more expensive floating rate.

The market has changed and some investors need to remember that banks are under no obligation to lend the money. In fact several lenders have decided that they just will not lend to borrowers with occupations of “property developer”, “builder”, “real estate agent” or “property investor”. After all the most likely fallout starts with these occupations especially around developments. Remember the days when you dressed up for a meeting with the bank manager and kept the appointment if fear and dread? No me either, but I do think common business courtesy and a competent mortgage broker are both useful things to have in today’s investment climate. You also want might want to consider:

A bank manager’s favourite customer:

Is a nice guy/girl (insert wine bottle here)
Keeps accounts in order, doesn’t run into arrears, unarranged Overdrafts.
Provides information when asked, and in a timely fashion (valuations, financial accounts etc).
Doesn’t squabble too hard about pricing, terms, dutch auction with other lenders etc
Provides regular communication about relevant information
Does NOT call twice a week regarding mundane issues
Has sufficient business/lending to be a profitable customer
Is a source of referrals for other quality business

Photo credit marcelgermaine

Tags: australia banks, bank lenders, fair weather friends, fixed rate loans, nz banks, property investment finance, value ratios