I am new to the investing world so apologise if my terminology is not correct/not making sense. Please ask more questions if i am not making sense.
My father, who is reaching retirement age, was introduced to one of these “off the plan” development companies (ill call them company X) earlier in 2011 and was lucky to get in to the Sydney market before the boom and purchased property 1 (apartment) in 2012 in a high growth area in sydney.
He then decided to commit to buying a few more properties through company x. He used the equity from own home and property 1 to put down deposits for property 2 (house and land), 3 (sydney cbd apartment) and 4 (inner west sydney apartment).
The original plan was to use equity from property 1 and 2 to then also finance the deposits for property 3 and 4 however property 2 was delayed and so he cannot get the equity out but has paid the deposit for property 2 just waiting for settlement.
Now comes settlement of property 3 and 4. The banks have tightened their lending policy and has used up all the equity in own home and property 1.
Is there a light at the end of the tunnel? Is he doomed and will have to lose the 80-120k deposits? Is there a way out?
His ultimate plan was to use capital growth and refinancing as a strategy to fund his retirement i.e. every year refinance portfolio and get 50 – 60k out to use for living expenses.
Thank you for any comments/suggestions.crjParticipant@crjJoin Date: 2004Post Count: 618
You haven’t given any time frames showing when your father needs to settle or what he needs to make it happen. What does he need? Does he need to find say $280,000 plus to get 20% equity in properties 3 and 4.
a. can you or someone else lend it to him;
b. can he onsell any of properties 2, 3 and 4
c. can he sell his house and/or property 1 to come up with what he needs
d. see a good mortgage broker
e. get legal advice whether any of the contracts can be crashed
f. can he negotiate an extension on settlement for Properties 3 and 4
g. has he something else he can sell
h. can he get a TTR pension from his super
i. is he old enough to get a second job, resign from it and trigger a release of superannuation
Tony FlemingParticipant@the-dark-knightJoin Date: 2008Post Count: 396
- This reply was modified 3 years, 3 months ago by crj.
Hey newbie2015 I’d talk to another broker to make sure every possible option is available to you. Still sounds like you may have some options available to you. Is company x helping or have they disappeared since getting the money?TomParticipant@thebeardedbrokerJoin Date: 2016Post Count: 10
Definitely speak to a broker. It sounds like your dad is om deep with company X, I assume they have their own finance arm or recommended broker.
It always worth getting a second opinion and mortgage brokers have a cheap hourly rate!Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
They’ve really done a number on your dads situation.
Speak with an investment focused mortgage broker – they will be able to determine whether theres any alternative option to drawing out the funds required to cover those remaining purchases, or if you need to go down another pathway.
Not a great situation, but life is full of challenges.
In terms of drawing equity and living off it – it sounds like he was told about a living off equity strategy – with the government regulator changes this is effectively not possible unless you have a substantial portfolio generating significant cash flow – at which point there would be no need to get yourself into spiralling personal debt just to meet living costs. Of all things he really needs to chat with a financial adviser so he doesn’t get himself into long term stress and a lacklustre retirement. Feel free to flick me a message if he wants the entire situation looked over in terms of lending + how he can work his way into having a manageable retirement, it’s a bit sad how far this has gotten so far.
Thank you all for your time in responding. I am working overtime at the moment but I hope to reply in more detail soon.
Company X are still in the picture and contact my father regularly. They have their own in-house Finance and Mortgage Broker team so my father does everything through them – ultimately losing all control as he has to sit back and wait for the finance team to come up with a solution.
It seemed like a good idea at the time to have a one-stop shop but now I can see how much control they have throughout the entire process from buying and financing through to rental guarantee.Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
It is crazy to sit back and wait for the in-house finance guys too come back to you when you have settlement dates pending.
Another major lender pulled out of the investment refinance market yesterday to go with other lenders who had already adopted this tightening in credit policy.
Do not wait. Get your father to act now and get a second opinion.
Yours in FinanceTerrywParticipant@terrywJoin Date: 2001Post Count: 16,213Daniel K MayParticipant@dkmayJoin Date: 2017Post Count: 1
Consumer Credit laws say that if you have to sell your house to be able to afford a loan (or 4?) then you could not afford it in the first place…. see
The contract will be unsuitable for the consumer if, at the time the licensee provides the credit assistance, it is likely that:
(a) the consumer will be unable to comply with the consumer’s financial obligations under the contract, or could only comply with substantial hardship; or
(b) the contract will not meet the consumer’s requirements or objectives; or
(c) if the regulations prescribe circumstances in which a credit contract is unsuitable—those circumstances will apply to the contract;
if the contract is entered in the period proposed for it to be entered or the credit limit is increased in the period proposed for it to be increased.
(3) For the purposes of paragraph (2)(a), it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.
I would be asking the ‘broker’ and subsequent lenders to provide a copy of your credit file and all documentation that addressed the ‘suitability’ of the credit contracts.
You still have contractual issues but these can be resolved with time – which can be bought from the Financial Ombudsman.
I would be highly surprised if Company X finance would stand up to scrutiny.
My message …. perhaps there is light – be very discerning about ‘traditional’ legal advice.
Look to the finance contracts and use the credit act. We all make stupid (and good) decisions – the Crdeit Act says that you must ahve been able to AFFORD it.
see https://fos.org.au/ and ASIC – read the legislation and codes of conduct, VERIFY your credit contracts line by line.
Your father got himself into this … rest assured he can prevail – do the work and you/he will get through it.Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
I’m not sure based on the above scenario that the poster would have much luck with referencing the NCCP or FOS – their issue appears to be:
1. timing of property 2’s settlement being delayed which is limiting their ability to draw equity funds for purchases
2. lenders changing their policies for new loans after the initial were applied for (due to regulatory changes) – which was done well after the provision of advice or products.
The overall business structure and relationships these places have are quite toxic and largely built on flogging as much product as they can at the expense of the consumer which is definitely poor form, but I’m not sure they would have much luck on the legal side.