How The Bank Can Wreck Your Investment
In the news earlier this week was the story of a young couple who lost their entire $75,000 deposit on a property thanks to their bank being too slow to get their finance sorted out. Article
If you didn’t hear about it, essentially what happened was that the couple had a $75,000 deposit saved up and ready to buy their first home.
They had been approved for a loan by their bank (not naming names here but it was one of the big ones), had made an offer on a house, which was agreed by the vendors and everyone was happy.
However, they didn’t count on their bank not having their money together in time for settlement. The date approached and passed and the bank failed them. This all happened in Qld, where home sellers are entitled to the buyers’ deposit as compensation if the buyer causes the sale to fall through.
So when the settlement didn’t happen, the vendors on-sold the property to a different buyer and kept the couple’s $75,000 deposit on top of that. The couple was devastated because they had lost their life savings and suddenly faced homelessness.
In this case, there was a happy ending, because the bank ended up compensating them and paying them their deposit back, plus a little extra money for stress, but not all banks will do that and they are now just back to where they began…trying to buy a property in a hot market. So it’s really still a cautionary tale.
This story is just one example of a number of bank-related traps that you can fall into when trying to buy property. And often it’s completely out of your control.
Timing is everything
The above example was a horror story about turnaround time, which is how long it takes a bank to pre-approve and finalise finance for your loan. Some banks are able to pick up, look at, assess and approve applications far quicker than others.
Some of the more established lenders are dealing with legacy technology, which means that they’re ill equipped to turn around a big increase in loan applications, which happens when interest rates are at an all-time low (like right now) and markets are hot.
Some of the lenders with better technology can therefore end up with a greater market share of new loans and refinances, because they can get the applications approved in a few days, rather than seven or eight weeks. Article
The fix is in
Another one that can cost you money is when a bank increases the interest rate on its fixed rate products between the time you’re approved and when you settle on the property.
RateCity data shows major lenders have been increasing rates on their fixed products twice a month in recent times, so you could face one or even two rate increases on something you thought you had locked in by the time you actually start making repayment. Article
The only way to avoid this is paying a rate lock guarantee, which can range between a flat fee of $375 for some banks and a percentage of an overall loan for others…which could be into the thousands if you have bought something expensive.
And you thought you were playing it safe.
Switch or stay?
We all know by now that loyalty only goes one way with banks. If you want to get the best deal out there, it won’t be from your existing bank. They are in the business of making money and they see “loyal” customers as the fools that pay top dollar and never ask for a better deal.
So if you want to max your money, you’ve got to shop around and be ready to switch lenders when you find one.
But what if you’re ready to switch and it turns out it’s going to take the new bank two months to approve the move? Simple, you go back to your bank and threaten to leave unless they give you a better deal. Often they will match the better offer in order to keep your business and that can save you the time and hassle of moving to a new lender.
Want to speak to a team who can make this process easier for you? Book in an appointment with our Mortgage Strategist team at Zinger Finance.