27 Jun 2016

When banks call in their loans

Let’s say that there’s a change in the banking policy and the bank no longer believes that the infrastructure’s in that town anymore and call in all of their loans. You have to refinance. Usually you have about 30 days to do so and if for any reason you couldn’t, all your loans would go into default. If your loans are in default then getting finance somewhere else would be incredibly difficult.

People have been hurt really, really badly in industries because the bank has changed their policies. They have been all tied up with the one bank and the bank’s decided that they no longer want to be in service stations in Northern Territory for example. They no longer want to be in the dairy industry in NSW. They no longer want to be in a milk vending business, even though they haven’t loaned on the business, they’ve loaned on the real estate underneath it. There are a whole lot of reasons as to why a bank may change policy.

This is why, if you’re all tied up with one bank then you expose all of the buildings.

Potentially, in the example above, your home which is worth $500,000 has got a million dollars’ worth of debt hinging against that property. That’s why, from the start, you need to make sure that your PPR is not cross-securitised. If it is already, then steps need to be taken to uncross-securitise it.

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