When there are a lot of big sales results going around, it’s important to remember that as far as the bank is concerned…everyone may have just paid too much. Just because you’ve been forced to go $50,000 above reserve to get the better of the competition at a fiery auction, your bank manager is unlikely to be understanding. Odds are, that extra money will mean you have to come up with more of a deposit to satisfy the bank’s loan to value ratio.

Ever since the GFC, lenders have tightened the purse strings to both protect their own interests and also to adhere to responsible lending laws. Lenders in this sense need to know that their assets are safe. If they lend too much for a property and, for whatever reason, you are forced to default on a loan, they need to be able to get their money back by selling the asset.

If they lend an extra $50-$100,000 and then interest rates rise a year later, that property might actually be worth less due to a lack of demand to push the price up and the bank runs the risk of selling at a loss. If you look at any of the big four bank’s yearly profit reports, you will probably have noticed that losses aren’t something they do very often.

Being a local market expert in their area, a real estate agent will usually judge the value of a house based on recent sales and their own knowledge, and quite rightly so. A bank however will usually be more conservative.

If the selling price is more than the bank’s valuation, they will still only lend against their own figure. That way they know they can get their money back, even if you default on a loan immediately after buying.

If you don’t agree with the valuation that a bank provides for a property you want to buy, see about having an independent valuer provide their own estimate…kind of like a financial version of a second opinion.

If the bank still won’t budge, you need to be prepared to come up with more money yourself up front. Your other option is to approach a different lender. Whichever way you go about it, it pays to be prepared. If possible, try to save more than a 20 per cent deposit, so that if the property goes for more money, you’ve got a little buffer of funds ready to roll and don’t need to scramble for finance. 

Tim McIntyre is the senior real estate reporter for the Daily Telegraph and News.com.au.
Over the past decade, he has attained widespread knowledge of Australia’s many unique property markets and is an authority on all things buying, selling and investing.
His commentary appears every Saturday in the Daily Telegraph Real Estate lift out, as well as online at news.com.au.


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