Do your assets belong to the bank?

By Tina Zawila

I spoke to an excited young couple this week who are about to buy a property, with the help of the bank of course.  I have also been helping an established business owner divest a property to pay down debt and simplify their portfolio. 

So what do both of these cases have in common? 

The impact of the bank’s security over their properties.

In the first case, the young couple have been offered finance to purchase the property, and they’ve even been told to ‘keep’ their cash deposit for property improvements, and instead the bank will simply take security over their other two existing properties (one of which is unencumbered) for this new debt.  This means that their three properties will now be inextricably linked.  Now this might all seem OK today – after all, it helps the couple get the property without having to use their savings, and it really doesn’t matter to them that the bank has linked the security over all of their properties… or does it?

Let’s move onto the second case, which ironically has similarities to the first case, just fast forward a decade or two. The client decides to sell a property which only has a small loan over it and plans to use the net proceeds (after paying out the loan) for other purposes.  However, when the bank finds out that there is a contract to sell, they put everything on hold, while they decide if the property can be sold, and what will happen with the proceeds.  You see, this property is also held as security over other properties (similar to the case I described above), and if it is sold, the proceeds must be used to extinguish bank debt on the other properties.  Leaving the client without any say in how the proceeds can be applied.  Essentially, the owner of the property does not have control over the asset.

Now I’m not saying that the bank in either of these cases is not acting in the client’s best interests, or within their rights, terms and conditions.  I’m just saying that the client should be acutely aware of their financial structure and the control (or lack thereof) that they have over their assets.  If possible, think ahead, plan for the unexpected, what if you need/want to sell a property in the future?  Most importantly seek independent advice, particularly if you are not sure of the implications of a finance offer.

The team at UHY Haines Norton can assist you in understanding and improving your financial position, call us today on 4972 1300 if you need advice.