Negative equity

Discussion in 'Property Market Economics' started by Burramys, 15th Sep, 2020.

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  1. Burramys

    Burramys Well-Known Member

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    In some places the pandemic has caused property values to fall, which may concern owners who have a high LVR. Do lenders check individual property values normally and in the pandemic? If there is negative equity and the payments are made (P&I preferred) as they have been from the outset, would a bank be comfortable waiting out the downturn? Under what circumstances would a bank take possession?

    The above is not me. The LVR is very low, with P&I payments more than required.
     
  2. Angel

    Angel Well-Known Member

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    Chill Brother. I cant answer for banks today, but when our property in a mining town was in negative equity a few years ago, the bank got paid each month and we never heard anything from them.

    If you are concerned about a property in a tourism or foreign student accommodation centre, the banks realise that tourism and hospitality and university businesses have been shut down. Banks would rather have a customer paying their mortgage than remove an owner (via repossession) and the property sit vacant while nobody else will purchase it.
     
    craigc, Dark Phoenix, Someguy and 3 others like this.
  3. Kent Cliffe

    Kent Cliffe Well-Known Member

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    You'd find in almost all loan documents the bank has a right to request a re-val and equity contribution. BUT practically on a 30 year P&I loan that isn't crossed, it's highly unlikely a bank would consider doing this*.

    *provided you continue to pay the loan off.

    The times I have heard people get in trouble with re-value is:
    • Commercial property + vacancy;
    • Mining towns on I/O loans at the end of the term;
    • Business loans crossed with property loans; and
    • People in the business of property (developers) in a property market down turn.
     
  4. Burramys

    Burramys Well-Known Member

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    Angel, thanks. You have confirmed what I believed to be the case. Your last sentence "Banks would rather have a customer paying their mortgage than remove an owner (via repossession) and the property sit vacant while nobody else will purchase it." sums it up nicely.

    Kent, thanks. There are times when banks get concerned, but these are limited. All I've ever owed was for PPORs and residential IPs, reasonably modest LVRs, and good cashflow. Even now with a recession my cashflow is adequate.
     
  5. pattoman

    pattoman Well-Known Member

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    As long as you are making your repayments the market value of the property makes zero difference to the bank.
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    ...and right now, you can probably even get away with not making repayments and you'd still be ok! :eek:

    The Y-man
     
  7. kaibo

    kaibo Well-Known Member

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    Happened to heaps of people twice in Hong Kong (At least 20% of all mortgages) after Asian financial Crisis and SARS. Banks kept offering deferments and government just supported the banks as if mass forced sale the Market would have dropped another 50% (was already 50% down).

    Same thing will happen over here (not talking about 50% drop) and in this day and age it seems the government will not allow families being forced to sell their PPOR (being homeless is also a COVID risk)

    It's actually people can't afford to sell as they don't have enough equity or liquid assets to cover the shortfall.

    What's a year or 2 deferment at such low interest rates anyway, the money is pretty much free for the banks atm anyway
     

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