Rate Club

Ease The Squeeze

Property Club Rate Club Blog

Did you see channel 9’s, 60 Minutes on Sunday? It was about the bank squeezing a client into bankruptcy.

There is a warning in this if you have a home mortgage or investment mortgage or a loan for shares.

The bank funding you can legally cause you to go into bankruptcy. They can squeeze you into bankruptcy, even if you have paid on time and have a long history of doing so.

Definitely watch the episode, but this is how it happens.

The Bank happily funded me on a 30% deposit.

I have got nearly a fifty-year successful history with the Bank and I have always made my payments on time.

The squeeze starts with, out of the blue, the bank announces that you are in default of the bank’s covenant due to you being outside the 70% LVR and the 2 times the interest rate cover (Even though you have met all your repayment requirements). This allows the bank the power to start the squeeze.

If it is true or not you have to take the bank to court to stop them here.

They then can make their demands and if you do not comply they will threaten to send in the liquidators.

Here they can now demand you to reduce your debt with them, increase your interest rate until you do so, appoint a third party to audit your finances (at your cost – but you do not get to see the final report given to the bank) and charge you all the legal fees in getting this completed. Then send you an advice that 70% is now not acceptable, they have changed it to 60% without any reason.

You have been on time with your payments so why the sudden lending change?

Because when you have a monopoly you can!

They know you have the cash and they want it. So they snaffle money that you have set aside for a holiday or perhaps as a deposit to extend your asset base to avoid the pension.

Whoosh your savings are gone!

Next, the bank unilaterally decides that they can see more assets that you can sell to satisfy their lust for cash. Your LVR now gets lowered, unilaterally again without any reason, to 60%. And so the squeeze on you continues.

It is legal and there is nothing you can do about it.

Or is there?

Your Club is working with a very proactive and intelligent small business minister. She is keen to know case studies of this happening. Our Branches are reporting that this has been going on now for nearly two years across Australia.

It is not just me, I am meeting average Mum and Dad’s who are in shock at seeing their nest egg of assets disappearing and the realism that a pension awaits them.

My case study:

In 2002, I bought a home and land package at Hope Island backing onto the Golf Course. The original NAB loan was $384,000.

In 2007, the increase in equity of the property allowed me to borrow a further $176,000.00 to use in purchasing more property. This increased the loan to $560,000.00

Repayments were interest only and kept up on time at just over $2000 per month on average.

In 2015, the bank refused to roll the loan over to Interest Only and stated that it now needs to be Principle and Interest repayment. In their need for greed, they increased my repayments to not double, not triple but to nearly $11,000 a month.

Their excuse? APRA.

They made my loan principal and interest, based on the end date of the 2007 refinancing – 20 year loan. Instead of extending the original loan each time the Interest only period ended (Roughly every 3 years) and the loan was rolled over again to interest only. Because I was 70 I must pay this principal off, hence they have hit me with a whopping $11,000 a month payment because they can.

As it was shown in the 60 Minutes expose of the Commonwealth Bank, an independent spokesman said: “The bank can take you out the back and shoot you if they want and it’s quite legal, it’s in all their terms and conditions!”

Next week I will show you how the banks squeeze more money out by coming up with an artificially low valuation or arbitrarily altering your loan to value ratio.

They may lend you the money on a 20% deposit but suddenly they will say “no we want 40% deposit and cough up the cash quick!”

Let’s ease the squeeze – we will be holding a rally outside a NAB branch the last Monday in this month. Contact your Property Mentor to be part of this for fifteen minutes to express your anger. If you are a renter – beware! Banks reducing supply will see a 50% jump in rents!

Regards,

Kevin Young