2015 - 2016

Lending

Property lending

Mr B owned two properties – an apartment and a house. He had a loan and an overdraft facility secured against the properties. He wanted to sell the house and asked his bank how much it would loan against the apartment only. The bank advised he would need to fully repay the overdraft and reduce the loan by $12,000 assuming his financial position didn’t change. The bank also advised this would be subject to credit approval after the house had been sold.

The house sold, at which point Mr B’s bank discovered the apartment was in a complex being investigated for weathertightness issues. The bank told Mr B it wouldn’t discharge the mortgage against the house unless all lending was repaid. Because the house had already sold, Mr B had to agree to the bank’s conditions.

Mr B complained the bank should have told him it wouldn’t lend money against the apartment before he sold the house. It said its advice was subject to a formal credit assessment and Mr B should have told it about the weathertightness issue.

When Mr B asked us to investigate, we asked the bank how it found out about the weathertightness issues and why it couldn’t conduct a credit assessment earlier. The bank had found out about the weathertightness issues via an internet search. The bank also advised that since Mr B sold his property, it had changed its policy so credit assessments could be done before a property was sold.

We approached other banks to gauge industry practice in this area and found the bank’s practice of not conducting credit assessments prior to a property sale wasn’t the norm. Other banks conducted credit assessments before a property sale. In our view, if the credit assessment had been conducted earlier, the weathertightness issue may have become apparent so the bank would have been able to advise Mr B that it wouldn’t loan against the apartment before he sold the house.

Mr B told us if he had known the bank wouldn’t lend any funds against the apartment he wouldn’t have sold the house. This meant he wouldn’t have incurred the $7,500 early repayment fee. The bank then offered to reimburse that fee, which Mr B accepted in full and final resolution of his complaint.