Talk to bank before selling: Ombudsman

Deborah Battell said her office had received complaints from people who found their bank would not let them keep what they expected to clear from the sale of one of multiple properties.

She said the scheme received complaints for a variety of factors, including early repayment costs and legal fees, but particular problems arose when people owned two or more properties that secured 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,” Battell said.

“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.”

She said the bank could require customers to pay off other debt rather than keep the money if their financial situation had changed, affecting their ability to make loan repayments, property values had dropped, as happened in the global financial crisis, or the bank’s lending criteria had changed since the loans were obtained, and the lending no longer met the bank's loan-to-value ratio (LVR) requirements.

Battell said investors who wanted to release money for their own use should contact the bank first so they knew how much borrowing would have to be repaid. “If a bank requires you to reduce your remaining loans and you have to break a fixed rate loan to do so, you may have to pay an early repayment cost.”