Can Lender force you to repay full if house value fall under loan value

For ex. You bought a house valued 1M with 800K loan. 80% LVR. You pay interest only.
Unfortunately house value fall to 750K and seem like happy diving, but you can still pay the interest on time hopping the price will gain ground again one day. Will lender ask you to repay the loan to avoid further lose?

Sound reasonable but also scary.

I am not asking possible or not. Instead a question: have you experienced or not?

Thanks!

 

In theory they can call in the loan. In practice it does not seem to happen. If you had LOTs of exposure to the one particular bank (ie many loans for IPs) they may ask you to reduce your LVR with them. This is why most investors have multiple loans with different lenders - so they do not appear on any one bank's radar.

 

I don't think they can unless you have breached a term of your agreement with them - such as damaging the security.

 

There's a number of consumer protections in place against the bank calling in a residential loan if the value drops. As long as you continue to meet your contracted commitments with the loan you're safe.

Most of this protection does not apply to commercial property however. These loans do get reviewed from time to time which can cause problems.

 

Yeah I couldn't see this happening! As long as you keep paying them then why on earth would they care??
They can either keep getting interest at an inflated value OR call in the loan as to which time you either default because you can't get the shortfall OR you sell and pay the difference and someone else buys the property quite possibly with a different lender.

 

This is one of the 'finance' benefits of property vs shares. Margin loans get called in when LVRs fall with price movements, whereas in property, so long as you continue to meet your repayments, the bank doesn't really investigate.

 

Thanks for all your insight.

 

My understanding is we are covered by contract law, so if it did not state in the contract it doesn't exist.

 

Actually, I think the shareholders would scream if they did do this, imagine large parts of Sydney drop by 30%, and many many thousands now have mortgages higher than the property resale value, the bank asks to cancel mortgage, people say fine...have it.......

So the bank is left with ? Do this enough with all the banks doing it, well, there will be large problems and probably domino. Who will the banks sell these places too.

How many loans you reckon written in Sydney at 90% at the peak ? Sydney could easily lose 10% or more

 

Banks can smash a weak market if they do that since it will most likely result in forced sale. Not in the interest of all parties involved.