The Honeymoon Could Be Over. Will You Have to Sell Your Home?
The first thing I want to say is this article is not designed to be alarmist or offer specific financial advice.
More than anything it is designed to prepare those of you, or anyone you may know, for what is in store when ‘The Banks’ stop their loan honeymoon period, which commenced at the time of the CoVid lockdowns.
In short, and you probably already have a grip on the subject, Banks allowed borrowers who were about to face some financial hardship as a result of Government re-action to ‘the virus’, to defer their repayments for 6 months. A honeymoon away from financial pressure of sorts.
That was back in March/April, and now we are headed into September/October – the 6 months have passed.
According to a couple of recent articles (see below) around 900,000 loan holders, mortgage and business, took up the deferrals and, very soon, the banks are going to start contacting around half of these people to discuss resuming payments and other ‘options’.
For those of you who may be affected, or know someone that is, here is a cautionary tale regarding a property I was called in to sell a few years back, where the bank was ‘knocking’ and the owner was in a bit of pickle.
Mary (not her real name), had been involved in a marriage break up and she secured the family home after an agreement with her ex-husband to pay him out based on a valuation of $530,000 in August of 2008.
Why is the date significant?
It was around that time that the market ‘peaked’ and a month later began the slide punctuated by the collapse of Lehmann Bros Bank in the US – the GFC. Australian Govt stimulus for the property market finished on the 1/1/2010.
From that moment until early-mid 2013, the Australian property market felt the credit squeeze fallout, and in some regions, prices fell 20%+.
Mary was, sadly, under financial pressure, and had to sell. The bank had been in ‘discussions’ with her and they were well aware she was trying to sell it.
This was early 2011 and the market was still sliding, with high stock levels and low buyer numbers. Property prices were under pretty heavy pressure.
Mary had been with another agent who thought the market was still rosy and appeared not to have the where-with-all to give Mary and honest assessment of how the market was faring and how that applied to her home, and its price.
I was referred to Mary and I laid out the exact landscape of the market and how that applied to her place.
She had been trying to achieve $580,000 for a few months with no takers.
One of the trickiest things to do is price a property when the market is literally rolling down a hill – you have to get in front of the growing snowball before it runs you over.
We started a fresh campaign with an Auction guide of mid to high $400,000’s which drew feedback from potential buyers of ‘$450,000ish’ but no takers or bidders.
With $500k+ still on her radar we then went to a price of ‘Mid $400,000’s Buyers’ – no takers – feedback still $450ish.
It was here I asked Mary if she was open to having a serious conversation.
She agreed. This was around mid 2011.
I said, “Mary, the bank is on your hammer. It seems they may only be a few weeks away from taking it off you. I implore you to listen to the market and take control of the sale yourself. If the bank steps in, they will sell it for whatever they can get, and they will come after you for any shortfall.”
“I want to get $500k. It owes me that.”
“I hear you clearly, Mary, but this market is on the slide and buyers are not willing to match your expectations. Let’s put it at buyers from $450,000 and see what the best offer is from the market.”
She agreed, but I knew I was pushing sh*t up hill because she was fixated on the $500k or ‘near to’ price.
She had been on the market for over 6 months with zilch result.
The price was changed to Buyers From $450,000 (legal in Qld) and pretty quickly we had three offers come in, with highest maxing out at $450,000. Strong finance, short settlement period.
Mary said, “No.” Her situation was becoming desperate and I actually held her hand and almost begged to her accept it, for her own good. She refused and she instructed me to put the price up to $499,000.
I knew from that moment she was cooked.
The repossession notice from the bank came in and I had to step away as I was not on that Bank’s list of local agents.
The property went to a Mortgagee in Possession Sale and the property was eventually sold for…$390,000!
The lesson is this for those who may be confronted with a decision with the closure of the current loan deferment/honeymoon period – take control of your own destiny.
If your circumstances are that you can no longer afford to service your loan or reach a new agreement, favourable to you, with your bank – sell it before they do! The costs and stress could be enormous.
The one advantage homeowners have who are faced with that choice, right now, is that property prices are steady and still rising in some part of Australia. You may not have to take a ‘haircut’ if you decide to sell your home. But if a glut of properties come to the market – this could change.
Also, if you have any equity in your home (its worth more than what you owe the bank) you are way ahead.
Sadly, Mary was underwater, she owed more than what she sold for.
This is not financial advice. This is experience from the real world of real estate and banking.
My closing tip is, if you think you will be affected by the removal of the ‘honeymoon’ loan period, seek financial advice and keep talking to your bank – ignoring them is a fatal mistake.
Stay well, stay afloat, stay safe.
PS. It is well worth considering selling your own home, and save thousands, should your circumstances head that way.
PPS. And to help current and intended members with better exposure for your properties; we are offering 15% off 30 Day Feature Listings on realestate.com.au until 6pm on the 30/9/2020. First 10 to respond will get the advantage of this great offer. Call us or see the pop-up on our home page.