Security for mortgages + setup

[HattrickNZ]

What is the industry standard when buying an investment property regarding the security setup. Is the investment property enough security for the bank to provide the loan? Or do they require you provide your personal home as security?

I am basically asking what is the industry standard? And what do investors on here personnally favour with regard to security setup?

[speights boy]

What LVR will you be asking for ?

[HattrickNZ]

around 79%. can you advise what difference this makes as I ma very new to this kinda thing and would like a good understanding. tks

[speights boy]

There are others here who are pretty much expert on such things as cross collateralisation and the like.
I am not active in that, so I am sure you will shortly get good advise.

But some thoughts.

1. Banks will want hold over as much security as possible.

2. Industry standard ?. I would think it is very much a case by case basis.
EG: Obviously your weekly disposable income is very important, as is your work history.

3. The rules are soon to change - possibly - as you know.
The supply of 80% could soon be restricted.
So yes, puting in a 21% deposit is to your advantage.

4. Remember the valuation will have to be shown to be accurate, the bank is the judge of this.

5. If you have a mortgage on your personal property, a lot of investors will get a revolving credit loan on this, BUT use a different bank for the mortgage on the rental.

6. After you have gained some knowledge here you can always speak to a broker and then you will be better informed as you discuss things with them.

[Leftette]

Isn't it true that even if a bank has no formal hold over your personal home when a mortgage taken against a rental, if you go bust owing money on that rental, they can chase you against other assets.

[JABlog]

Isn't it true that even if a bank has no formal hold over your personal home when a mortgage taken against a rental, if you go bust owing money on that rental, they can chase you against other assets.

yes , thats where you need to protect your assests by a good structure.

[Ivan McIntosh]

They can get judgment against you in the courts, then use that judgment to obtain a charging order and/or writ of sale, yes.

Even if the rental is in the ownership of a trust or company, you are still more than likely to be guaranteeing the loan personally, and that debt can track back to the personal residene..

So the personal home had best be in the ownership of another entity again.....one that hasn't guaranteed your debts personally. That would insulate you........

........as long as you could keep paying the mortgage and the bank wasn't the same in each case with you guaranteeing both loans, which would allow the bank to use the prejudice of the rental default against you as guarantor to call up all of the loan on the personal residence on the basis that your financial position as guarantor on the persona residence was now compromised or, even if the rental and the personal residence were in different ownership with different banks, the personal residence bank didn't treat your bankruptcy at the hands of the rental bank as grounds to accelerate the personal residence loan. Etc. Etc.

There's always fishhooks.

[speights boy]

Absolutely leftie.

The beauty of full recourse loans as opposed to that nonsense in half of the USA.
(don't get me started on Trusts )

However, it avoids the situation in a downturn where you sell for more than your mortgage but they still keep some of the proceeds in order to lower other LVRs with them.

[speights boy]

Here's a radical idea.
How about getting someone to explain your contract before you sign up if you can't understand it or fail to read it.


Landlords complain about bank loan tactics

Landlords are complaining about banks calling in loans from one property when another is sold.

Andrew King, executive director of the NZ Property Investors Federation, and Auckland Investors Association immediate past president David Whitburn said there were issues in their sector.

www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11315155

[BigDreamer]

It also depends on where your new property is based. Sometimes even if you have LVR < 80% and the rental is in a very small town the the back would want security over it

[speights boy]

The banks were often doing this 7 years ago as mentioned.
If they are increasingly doing it again, then perhaps it's a sign of some proactive actions based on a few concerns in certain markets.
Just a thought.

[Ivan McIntosh]

The banks were often doing this 7 years ago as mentioned.
If they are increasingly doing it again, then perhaps it's a sign of some proactive actions based on a few concerns in certain markets.
Just a thought.

They've always done this, as long as I can remember, if they have any concerns about your position.

All bank loan documents will have provisions so wide that basically any possible potential detriment to their position can be grounds to call up the loan or require you to top up your equity, increase payments etc.

[speights boy]

They've always done this, as long as I can remember, if they have any concerns about your position.

Correct Ivan.
But why this complaining story from Landlords at this point in time ?
That is my point.

Is it becoming more common, as it was in 07, 08 ?

[Ivan McIntosh]

I would imagine that the interest rate rises have triggered some reviews of highly geared clients....so more common than it was a year ago. Also, I feel as though there is a bit of profit-taking at the moment; people selling one unit to lock in their capital gain and reduce the interest burden, and that triggers the bank to look a the LVR on the remaining properties and grab a reduction. I don't see enough of the overall market to form a definite opinion.

[speights boy]

I guess the RBNZ's proposal for moving some mortgages to commercial terms may be a factor.
If so, then it seems to be another good proactive move.