Australian Property News
ANZ shifts conditions for LOC loans
Posted on Thursday, June 18 2009 at 1:15 PM
ANZ has reassured customers it has no plans to cut borrowing limits or shut down accounts for customers with a line of credit (LOC), despite recent changes to lending terms and conditions.
The new terms and conditions state that ANZ can reduce or cancel the credit limit on its ANZ Equity Manager and ANZ Home Equity Loan facilities "at any time".
"If your credit limit is reduced then you must immediately repay enough money to ensure that the amount outstanding doesn't exceed the reduced credit limit and must still meet all of your obligations under this agreement for credit made available on your facility," the updated terms and conditions say.
"If your credit limit is cancelled you must immediately repay the outstanding balance."
Jane Slack-Smith, director of Investors Choice Mortgages, says the change brings ANZ in line with Australia's other major lenders.
"I believe that a retrospective change to a signed contract is not good business practice and shows that they're being reactive to market pressures, having not planned ahead in the first instance," Slack-Smith says.
"In reality most of the major lenders have these terms in their contracts already, ANZ just seems to have missed them out."
An ANZ spokeswoman says the changes are unlikely to have any impact on customers at all.
"The revisions have brought ANZ in line with industry standards - the revised clauses are similar to those used by other major financial institutions on similar products.
"They allow the efficient management of capital costs in relation to these account types.
"However, ANZ has no immediate plans to remove or reduce credit limits for existing customers. Therefore, the alterations to the terms and conditions are unlikely to affect customers at all.
"ANZ will continue to consult with customers to work out how best to manage their account."
Slack-Smith says the global financial crisis saw lenders in the United States shut down similar loans.
"Traditionally the LOC like a big credit card seemed the perfect finance structure to assist people in using equity from their home or investment properties," she explains.
"Essentially you had the money sitting in an account and if you didn't use it you didn't pay interest on it.
"However, US lenders found that having these accounts of funds that could be cleared out at any time was a liability in an already turbulent time and hence many of them froze unused money in these accounts.
"Although this hasn't happened here, it's possible," she adds.
As a result, it's worthwhile for investors to at least consider alternative structures to meet their needs.
"One alternative option is having an interest-only variable home loan with an offset account. In this case the loan is fully drawn with the funds sitting in the offset account. Once again interest is only paid on any funds that have been drawn," Slack-Smith says.
"The downside is these variable products often have only a five-year to 10-year lifespan before the lender expects it to convert to principal and interest. On the positive these facilities are often cheaper than LOCs.
"Hence you need a strategy for the end of the five or 10-year period and often to access another interest-only period you may need to change lenders, which means you need to service again, which may be an issue if interest rates are high.
"However, beware many lenders do not like funds to be drawn just for the reason of 'future investment' and the higher the LVR the more scrutiny the lender will consider this cash-out option. If your purpose is to buy an investment property then the lender may not release the funds until you front with a signed contract."
Follow us on Twitter.
Was this article helpful? Place a link to it from your website, or share it using the button below.
Recent articles:
Assumed first homebuyer profile not right
Fringe suburbs deliver top growth
Units might need TV signal distribution system upgrade
Undersupply not the only obstacle
Dwelling quality takes priority over quantity
RBA official identifies housing shortage as key challenge
