Be clear how much you’ll pocket if selling property

Media release – 27 August 2014

Be clear how much you’ll pocket if selling one of your properties

Customers wanting to sell one of their properties to release capital should first be clear how much money their bank will let them pocket, said Banking Ombudsman Deborah Battell.

Following complaints from people who found their bank didn’t let them keep what they expected to clear from the sale of one of their properties, the Banking Ombudsman Scheme has issued a quick guide on selling property to release capital.

The Banking Ombudsman receives complaints for a variety of factors, including early repayment costs and legal fees, but particular problems arise when people own two or more properties that secure one or more loans.

“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.

“The bank must be satisfied it is left with sufficient security for its remaining property and other loans. This sometimes means the amount owing on remaining loans needs to be reduced with proceeds from the property sale, and this has been a nasty surprise for some customers,” Ms Battell said.

For example, the bank can require customers to pay off other debt rather than keep the money if:

• their financial situation has changed, affecting their ability to make loan repayments

• property values have dropped, as happened in the global financial crisis

• the bank’s lending criteria has changed since the loans were obtained, and the lending may no longer meet the bank's loan-to-value ratio (LVR) requirements.

The Banking Ombudsman Scheme has a range of property-related quick guides including:

Early repayment costs on fixed rate loans

Concerns about lending decisions

Residential loan-to-value lending restrictions

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