Landlords complain about bank loan tactics

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Landlords are complaining about banks calling in loans from one property when another is sold.

Andrew King, executive director of the NZ Property Investors Federation, and Auckland Investors Association immediate past president David Whitburn said there were issues in their sector.

Banking Ombudsman Deb Battell warned that people wanting to sell one property to release capital should first be clear how much money their bank would let them keep.

She released a statement saying that following complaints from people who found their bank didn't let them keep what they expected to clear from the sale of one property, she had issued a quick guide on selling property to release capital.

"If a customer sells a property which is security for a loan, they usually keep the proceeds after the loan is repaid. However, this may not necessarily be the case when a person has an "all-obligations" mortgage and a number of loans," she said.

King warned bank customers to be careful.

"If you have a good look through the loan documents, banks can call in the loan almost whenever they want. So they have the right to use sales funds to reduce debt levels if they feel it is required. The advice from the Ombudsman's Office is good," he said.

Whitburn said the loan repayment issue had affected association members in the recession of late 2008 to 2010.

"In fact I have heard worse with a few members having their revolving credit facilities cancelled, others had their facility limits trimmed, and a few got called in to their bank manager who told them to revalue the properties using one of few bank approved valuers and to reduce a loan.

"Cross-collateralising security can be dangerous, as the lender will often require you to give an all obligations mortgage as security for their loan. This is exactly why I spread my borrowings over a number of banks. It is something over-looked by the majority of property investors, that you investing strategy is only as good as your borrowing strategy.

"Property investment is a wonderful activity, but it is a fallacy that there is a risk free capital gain and that everyone makes lots of money all the time," he said.