When is servicability reassessed

A question for a mortgage broker with experience of St George Portfolio loan.

If one was to sell a property which is securing a STG portfolio loan, clearly STG are going to want to revalue the other properties tied to the loan and have the loan repaid down to 80% or less (no LMI). When they do that would they also look at servicability?

Also, if one was to substitute the sold property with another property with a lower value, would a servicability check occur?

 

Yes they possibly would. This is why you should never cross. They may insist on keeping the loan proceeds and using it to pay down debt.

 

Generally, if you maintain the same LVR, the banks don't revalue your existing properties.

However, at the moment the property market has been going gangbusters so in most instances that is probably why they are not revaluing a lot at the moment if you maintain the same LVR.

When the market does fall, you would probably see more banks requesting valuations on portfolios that are crossed and hence is one of the reasons why it is best to keep the loans separate.

 

Based on your comment, so banks can proactively revalue loans without the customer's knowledge/consent?

Hypothetically if valuation comes out bad but assessed serviceability is OK, can banks actually force us to sell?

And even if valuation comes out OK but assessed serviceability fails to meet requirements (due to having more dependents under 18/loss of income/further tightening of service calculators), can banks force to sell?

 

Generally lenders won't reassess serviceability if you sell a property in a portfolio structure; but there's no guarantee of this. It's quite common for lenders to require borrowers to reduce their debt after a sale, this could be triggered by them doing an internal servicing check based on what they already know (which could be quite a lot, especially in a portfolio structure).

They will perform valuations on the remaining portfolio. This might mean they send a valuer out to remaining properties, or they might only use a desktop valuation. If the LVR of the remaining portfolio is below acceptable levels, they'll require you to reduce the remaining debt.

Portfolio loans are essentially a cross collateralisation of any properties within the structure. The concept of the master limit is great, but the implications of the cross collateralisation component makes it a generally bad idea.

 

Thanks for all the replies.

Basically what I am hearing is that STG could look at value and/or servicability at anytime. I knew this as it's clearly spelt out in the terms and conditions, in fact it states they do an internal review annually and could demand more info from me if needed.
However I'm really trying to find out what STG actually choose to do in normal circumstances with a customer who has an exemplary record with them. If I've understood correctly STG would not normally do a full servicability check (by this I mean demanding proof of income etc) simply because one sells a property which is securing the portfolio loan or because of a security substitution assuming of course the total loan limit or LVR does not increase.

To give you a little more info about the reason for the question.

I was retrenched last year with a fairly large payout. I am considering retiring early and one thing we may want to do is move out of Sydney, sell our PPOR and buy a new cheaper house somewhere else - i.e. A sea change. What I don't want to do is to sell our PPOR only to find that STG do a full servicability check and demand we reduce our loans. We've got stack loads of unused equity in the portfolio loan so LVR should not be an issue but servicability might be as our only income would be from rental properties. I would not be unhappy if STG wanted to use excess funds from PPOR sale/ new PPOR puchase to pay down the portfolio loan though it would be nice if they didn't.

In terms of the portfolio loan, I was fully aware of cross collateralisation and went in with my eyes open. For me it has given me a large amount of credit to use as a margin loan for share trading - the major advantage being little chance of a margin call. I got burnt quite badly during the GFC with a large margin call on a traditional margin loan.

 

Bugger. Your in a bit of a pickle then. Best of luck with the sale, fingers crossed they don't make you repay all the proceeds towards paying off debt.

 

Not really I have many options, this is just one of them. Financially i feel very fortunate.
Thanks for the best wishes.