Friday, May 29 2015
The risks I have discussed previoulsy with regard to off the plan purchases for units have fully emerged this week.
APRA has applied pressure to banks to restrict the growth in investing lending. As a result banks have tightened their policies and increased the pricing on investment lending.
So if you have signed a contract to purchase off the plan what are the risks?
Firstly off the plan purchases involve unconditional contracts. Unconditional means once you sign the contract you have no outs.
If you can't obtain finance and can not settle on the property you will forfeit your deposit. The vedor could also take legal action against you to enforce the contract and compel you to settle which could be financially devastating.
Secondly the loan you thought the bank was going to give you to fund the purchase may longer be available. In many cases your bank will now provide a lower loan amount and the interest rate on that loan will be higher.
This means to settle on the property you will need to provide additional cash or equity and your cost of funds will be higher. If the bank valuation on the property comes in lower than the contract (which is likely for many inner city units) this will be a double whammy as you will need to provide further cash or equity.
Who is at risk? Any purchaser who does not have a written unconditional finance approval from their bank specifying the full details of their loan. Conditional, indicative, or verbal approvals are worthless and offer no protection.
NOTE It is only possible to have an unconditional approval form your bank if you have submitted a full loan application with all supporting documentation verifying your income, expenses, assets and liabilities.
What can you do? You need to get professional advice asap to assess your situation and get an understanding of your options.
Contact us to arrange a review