Article by Patrick Lynch, Head of Operations
Sometimes, an application can really challenge a knowledgeable Broker and support team. Here’s a recent example where under tough circumstances we still managed to secure a great outcome for our client.
The Application
The Client was an Australian couple, citizens living overseas and earning foreign income. Not uncommon for us – we’ve helped a few overseas Clients buy Australian property. What was different:
- Off-the-plan apartment purchase; Contract of Sale signed some years ago and settlement timing unknown
- High Loan to value ratio (greater than 80%), so involved Lender Mortgage Insurance.
There weren’t many Lenders who could deal with the above, but we found one for which policy worked and the interest rate was pleasing (investment, principal and interest, variable).
Assessment
After considerable effort to make the Lender comfortable with the Client’s foreign income (including non-standard payslips and deductions, a dormant business with historic losses, etc.), the Lender was able to issue Conditional Approval. Formal approval was subject only to a satisfactory valuation and review by the Lender’s Mortgage Insurer. The valuation would happen once the off-the-plan property was complete and ready for inspection.
Valuation
With off-the-plan purchases, the Vendor can call for settlement within 2 weeks of the Certificate of Occupancy being issued or Plan of Subdivision registered. That’s 14 days in which to complete a valuation, issue & accept loan documents, book & complete settlement! Tight but achievable, even with an overseas Client, unless…
We lost a few days for the Bank valuer and Vendor agent to arrange a property inspection; not ideal but not really an issue either. However, the valuation came in more than 10% lower than the purchase price from the Contract of Sale signed years ago. We seldom see this, but a low valuation has become more common for off-the-plan apartments due to a surplus of supply in certain areas and concerns with building standards. This left the Client with a tough choice:
- Challenge the valuation – we already had time pressure, so this would put the settlement date under threat (with potential penalty interest being charged by the Vendor for missing settlement);
- Proceed with a lower loan – the Bank will only lend against the lower of purchase price or valuation, so the Client would have to find additional funds to complete;
- Try to withdraw from the purchase – which would leave the Client open to legal action, forcing settlement, as the Vendor may not be able to sell to a new purchaser at the same price.
In consultation with their conveyancer, the Client decided option 3 was off. Instead, the valuation was challenged to try uplift the value and reduce the Client contribution. Comparable properties were gathered and submitted to the valuer for review – challenges are generally unsuccessful, as no professional wants to be told they are wrong. So it proved – no change in value.
Therefore, we were left with requesting that the Bank approve a lower loan, with the client finding additional funds to complete. The Bank accepted the request, and formal approval was granted. The conveyancer was also able to obtain an extension to the settlement date.
Loan offer documents
Following an escalation request, the Lender quickly issued loan documents. It would now be about delivery, signing and return. Postal delays (FedEx and AusPost) meant the revised settlement date was missed, but again the conveyancer was able to request a further (and final) 2-day extension, with limited penalties. The Client completed their pre-settlement actions, with funds to complete available. It was fingers crossed that the signed loan documents would be received in time…
Settlement
Did we make it? Yes – loan documents were received the morning of settlement, hand-delivered to the Bank and worked on immediately. Most times, certification and booking take at least 3 days – it helps to have Bank contacts we trust and respect to make things happen. Once the Bank certified the loan documents, settlement was booked and completed that afternoon.
Conclusion
This was Murphy’s Law and Chaos Theory combined – once something doesn’t go to plan it can snowball. However, with perseverance plus the support of the Bank and the Client’s conveyancer, even a difficult application and settlement can be achieved. Imagine having to do this yourself as a Client, or as a Broker whilst also ensuring other Client applications and settlements aren’t impacted. Ultimately, we were delighted to complete the Client’s purchase and settle the imperfect application!
Long Property blog content provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Nothing on the Long Property website constitutes legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
