Bank acted reasonably to accommodate couple as building project became ensnared in delays and changes

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Bank acted reasonably to accommodate couple as building project became ensnared in delays and changes

Categories:

Lending restrictions,

Summary:

In mid-2021, Minerva and Horatio asked the bank for a $170,000 loan to build a pool and modular unit on their property. The bank agreed, with the loan to be advanced as progress was made on the build. Part-way through construction, the couple asked the bank to fix the interest rate on their floating rate loan after becoming concerned about rising interest rates, construction delays and the financial soundness of the construction company (which subsequently went into liquidation). The bank declined their request and declined it again when construction was completed. The bank did eventually agree to fix the rate, but by then rates had risen and the couple complained that they had missed out on the opportunity to lock in a more favourable interest rate.

Published:

September 2024

Our investigation

We found the bank had approved the loan based on quotes for building the pool and modular unit, as well as on a registered valuer’s estimate of the value the improvements would make to the couple's property, which was the security for the loan. The loan agreement said the bank's variable interest rate would apply until the couple obtained a code compliance certificate from their council and a completion certificate from a registered valuer, at which point the bank would switch the loan to a fixed interest rate.

We learned that when the bank heard their concerns about the construction company, it agreed to fix the interest rate on the amount they had borrowed up to that point – provided they completed a loan restructuring application, a request we considered fair and reasonable, but one the couple did not act on.

We also learned that various factors led to the bank’s delay in fixing the interest rate. The couple had built the modular unit but not the pool, and they did not want to get acompletion certificate from a registered valuer. Despite this, and after correspondence stretching over a month, the bank agreed to accept an online valuation of the property and also to backdate fixing the interest rate to just before the council issued a code compliance certificate.