Dave Hughes struggled to find finance for the Block Elsternwick purchase
The recent investment experience of the popular comedian Dave Hughes should serve as serious lesson for all property investors.
Hughes revealed the reality of what happened following his top priced purchase at the over-hyped auction of the five Elsternwick homes in The Block last October.
He revealed his home loan bankers had valued the five-bedroom home at “much less” than his $3.067 million purchase price.
He also revealed it had not been easy finding tenants, for what will be an investment until the family move in down the track.
“I went to get a bank loan and they haven’t valued it the same as I paid for it, which is fine, but annoying because there were five bidders,” he told Stellar magazine.
He said it was sizeably less which it made him annoyed. Colorfully so!
“For f*ck’s sake ... I just think it’s good value and in a few years’ time people are going to be going, ‘Well, f*ck, didn’t he do well with it!’ I am playing the long game, all right? That is what I say to my wife, anyway.”
The comedian had gone public with his purchase saying soon after the auction: "It’s a bargain!"
But increasingly cautious lending eyes cast over the home renovated by contestants Josh and Elyse couldn't agree.
It had, after all, sold at $447,000 over its reserve, which notwithstanding the reserve's arbitrary nature, would have raised obvious concerns for any lender.
Thankfully Hughes had deep enough pockets to fund the lending shortfall to secure his dream home.
But ofcourse not everyone can do so in this scenario.
These buyers instead face the risk of being unable to settle, forfeiting their deposit, and potentially copping the liability of any shortfall when the vendor sells again.
For several years, low bank valuations have been a risk for off the plan buyers as they moved towards settlements of their apartments.
Forfeited apartments have however been surprisingly few, perhaps because buyers have had years to plan their finances.
But low valuations could emerge as an issue for hot headed auction buyers.
Be sure to keep your bidding at a level that fits both your budget and your knowledge of the local market pricing.
Also stay in touch with your bank, keeping them advised on your financial income and expenses, as their lending approvals are fluid.
Banks have tightened what they will lend under pressure from the Australian Prudential Regulation Authority given their anxiety about borrowers' genuine capacity to repay debt.
They want to stop liar loan applications.
Buyers who find themselves in the tricky situation of a low bank valuation should approach a mortgage broker who can go to other lenders to hopefully break the deadlock.