27,000 distressed properties looking for a new owner
16 April 2016
Duncan Hughes
Death, divorce and desperate vendors are some of the reasons for nearly 27,000 "distressed" properties on sale around Australia, according to SQM Research, which compiles data about property.
It could mean big bargains for buyers as banks and finance companies hold forced sales, slash prices or remove reserve prices in a bid to recoup their losses.
Brisbane's Gold Coast is the nation's hot spot for distressed sales, usually involving apartments purchased by buyers who cannot be contacted by lenders or who may be living overseas, says Louis Christopher, owner of SQM
Other regular appearances are properties in mining towns where apartment supply massively exceeds demand after the collapse of mineral prices, closure of mines and departure of miners.
Property repossessed by lenders, such as banks and buildings societies, is less than 1 per cent of the total, which is reflected in default figures reported by banks in their annual results. Despite this, more borrowers are feeling the squeeze as lenders increase rates even though the official cash rate is staying the same.
Lenders reluctant
"We are not seeing borrowers returning the keys to the lender because of arrears or being forced to leave the property," says Christopher.
That's partly because rising prices have created options for buyers struggling to pay their mortgages, such as selling, trading down or finding tenants to boost the household cash flow.
Lenders are also generally reluctant to repossess properties because of the legal and administrative costs and the potential for bad publicity in a ferociously competitive sector.
"We have sound lending practices," a spokeswoman for Westpac Group says about screening processes for loan applications that might prevent future problems.
"We only consider repossession as a last resort," she says.
Negotiate arrears
Westpac, and other major lenders, have specialist teams trained to assist customers with financial problems.
Strategies include extending the loan term, from, say, 25 to 30 years or a short-term moratorium on repayments or deferral of payment.
Alternatively, lenders will consider a short-term fixed or reduced payment, below the minimum monthly repayment, which can be accompanied by an interest rate reduction.
Other strategies include capitalising arrears where some, or all, of the outstanding arrears are added to the remaining principal balance to be repaid over the life of the mortgage.
ASIC, the nation's financial sector regulator, warns that missing mortgage repayments can happen to anyone, particularly in sectors facing rising unemployment such as mining and media.
"It is stressful and embarrassing to talk with a lender but taking action quickly means you can stop a small problem from becoming a big one," a spokesman says.
Avoid more borrowing
It strongly recommends avoiding borrowing more money or using credit cards, which usually have much higher interest rates, or borrowing from friends and family, which creates social pressures.
Consolidating debt or refinancing can mean additional costs, while switching home loans may take some time to recoup costs.
Accessing super should only be considered as a last resort and "only in cases where it means saving your home," the spokesman says.
"When you get behind on mortgage repayments, it is time to get serious," he adds.
A lender must take several steps before legal action, including repossession.
These start with a letter alerting the borrower to the missed payment, a default notice giving at least 30 days to catch up, a statement of claim, or summons, a writ action to taking possession of the property, a sheriff's letter stating when locks will be changed and eviction.