A property investor caught out by falling house values is a reminder to landlords to be careful in how they structure their loans, one investors' group says.
The Banking Ombudsman investigated after the investor was not able to have her mortgages discharged in the way she had hoped.
She had three loans on three properties, two of which were rental properties.
She decided to sell one and told the bank she would use the sale proceeds to repay loans worth $680,000.
She wanted the bank to discharge the mortgage on the remaining rental property.
The bank said she would have enough equity in her third property to do so, but it would want to be sure she could afford the remaining lending.
But when the property sold, it was not for the price she had hoped and the value of her third property had dropped too, which meant she could not discharge the rental mortgage.
She told the ombudsman the bank had wrongly rejected her request and had not given her enough information to discharge the second mortgage or restructure her lending.
The ombudsman did not uphold the complaint.
"The bank declined to discharge the second mortgage because that would have left her without enough equity to satisfy the bank's lending criteria. The bank also wasn't satisfied [she] had the ability to service the remaining lending.
"She was receiving assistance from the bank's hardship team at that time because she couldn't meet loan repayments as a result of a change in employment.
"There was nothing to suggest the bank had made any errors, and we found the bank had been clear with [her] from the outset about what it would require to discharge the mortgage.
"The bank was also clear at the time of settlement that it could discharge the second mortgage if she repaid a further $20,000."
General manager of the Auckland Property Investors Association Sarina Gibbon said it was a reminder for investors, particularly those with multiple properties, of the challenges that could be posed by tightening lending criteria and fluctuating property values.
"We were seeing more investors confronted with limited financing options due to properties not reaching their expected sale prices or valuations in the last few years, though that trend seems to have calmed down in the last six months or so.
"In any event, stories like [this] are a reflection of market volatility and stricter lending rules.
"Property investors should avoid falling into the 'one bank' trap, as it can leave you exposed to unnecessary risk and at the whim of the bank's changing lending rules, which can add unpredictability to your financial situation.
"Consider working with brokers instead of dealing with the bank directly, as they can provide tailored advice and help structure loan portfolios that are better suited to market fluctuations and your long-term investment strategy.
"Lastly, having a considered investment plan is essential. Being forced to sell properties at suboptimal prices is a risk, and a well-structured strategy can help mitigate that and ensure long-term success."
This article was first published by RNZ
ISSUE
