Have you seen a bank troll lately?
Banks have been telling us for the past four to five years that they have learned from their mistakes and are now customer-focused. That was last year. This year falling profit growth is reacquainting us with the banks of old. It is official: you are just a number, albeit a fairly long number 014450-00867845-00. There are plenty of fantastic bankers out there, a number of who go to extraordinary lengths for their customers. Unfortunately the bankers we love are increasingly not the decision-makers and they won’t be enjoying being the messenger! Bank trolls usually lurk in the depths of head office. During the good times the sales teams dominate and the bank trolls are kept in submission. Now, in the midst of a credit crisis and a recession, bank trolls tend to re-emerge. Did you know that if you sell your property: (1) the bank can stop the sale by not discharging the mortgage and (2) the bank can force a review of your overall position including making you revalue all of your properties used as security. If your properties have dropped in value, the bank can take all of the equity from the sale to put against your other mortgages.
One of my clients sold a property to reduce debt levels. The property had $75k equity in it, which the client intended to use to cover the period his wife was off work with a baby. National Bank had cross-collateral with their other properties so the sale triggered a review of their overall situation and all of their mortgages. National Bank decided to take all of the sale proceeds (including the $75k equity) to reduce their other mortgages below 80% (the bank as mortgagor has all of the power). Only after seriously throwing their toys (and very senior intervention), the bank relented and let them keep $10,000 to help cover additional living costs. The client has never missed a mortgage payment and has another mortgage-free property that we will now mortgage elsewhere to cover costs whilst his wife is off work. In the current market there is a single-minded (almost myopic) focus on income and ability to service a mortgage. The example above was banking by numbers and although we singled out National Bank, no bank is immune. We had one from ANZ just a week later. Same story - only this time the bank also charged the clients an early repayment penalty fee for reducing their other mortgage!
What can you do?
Always use a reputable mortgage broker and split your relationship across multiple banks. Your banker will say this is nonsense partly because they are rewarded for having more of your business, and partly because they haven’t been around for long enough! Be wary of triggering a review of your property portfolio unless you have thought through the outcome. Any additional lending, selling a property (that is cross-collateralised), and refinancing will all trigger reviews.