What Does A Bank Assess?

In the end, banks evaluate the possibility that they would suffer a loss if they have to sell the property to pay off the loan when they consider it as collateral.

The following are the primary factors that a bank looks at.

Loan To Value Ratio (LVR)

The LVR represents the sum you’re borrowing relative to the property’s value as a percentage.

In general, the greater the risk associated with the property, the lower the LVR you qualify for.

Typically, you can obtain 100% financing for standard homes but might be limited to borrowing only 70% LVR for specific unique properties.

In certain situations, the sole method to gain approval is to present a larger deposit or enlist a guarantor as a no deposit home loan solution.

Saleability

Properties that are less attractive to the general public might require more time to sell, making them less preferable as collateral for a home loan.

Banks frequently seek a property that can be swiftly sold if the loan goes unpaid.

Stable Value

If a property decreases in value considerably, the bank could incur a loss if they needed to sell the property to pay back the loan.

Banks do not aim to profit from selling your property; instead, they assess risk as though they were selling the property on that very day.

If the evaluation indicates weak performance for your property in recent years, the bank will probably limit your LVR.

Legal Issues

Some property types such as company title units don’t have a normal certificate of title so there may be legal issues in the event that the bank has to sell the property to recover their loss.

When trying to get approved for home loan secured by an unusual property, our mortgage brokers always present a strong case to the lender.

We highlight your strengths of the property and you as the borrower.

By speaking in their language and providing additional supporting documents, we can often give them enough of a reason to bend their lending guidelines.

Do You Have The Address?

If you have the address of the property you need financing for, our brokers can gather additional details about it and return to you with the relevant bank policy that applies.

We can look up the property address on the internet and collect details from previous sale listings, including any restrictions or potential issues from a lender’s perspective.

We can additionally reach out to the credit departments of various lenders that maintain databases on particular properties of interest.

Specifically, the majority of substantial unit blocks (fewer than 50 units) are included in at least one lender’s records.

We can inquire about their latest credit decision regarding an application that included one of the properties in that block as collateral.

This is a fast way we can utilize to determine if purchasing that specific property is feasible for you.

There Are Actually Two Types Of Valuations

There are two types of valuations that are used when valuing a property.

Which one is used will depend on the property and the discretion of the valuer.

In scope

The PropertyPro template, created by the Australian Property Institute (API), allows valuers to expedite valuations according to predefined criteria.

Also referred to as a short form or in scope valuation, it offers enough flexibility for a wide range of residential valuations.

Banks favor concise forms as they are much simpler to read and allow for a rapid verification of whether the property satisfies their lending standards.

Simplifying processes for the banks increases the likelihood of your home loan being approved.

Out-of-scope

Out-of-scope valuations are typically longer since they consider additional characteristics related to the property.

They are often costly, and banks dislike them since it requires additional effort to verify that they can accept it according to their lending policy.

Out-of-scope is frequent with commercial properties since numerous factors must be taken into account for valuation, including the revenue potential of running a business at that location.

Yet, certain residential properties possess features and characteristics that are somewhat unconventional as well.

What Methods Are Used When Valuing?

Appropriate consideration is taken of the land’s potential for uses beyond residential purposes.

This is reliant solely on existing zoning and local council planning regulations, without considering any possible modifications to these regulations.

Similar to banks, valuers do not focus on speculative pricing as developers and investors do.

For instance, if zoning regulations permit the construction of structures (consider countryside estates) or allow specific business operations, the appraiser will factor this into their ultimate valuation.

It’s especially crucial for developers or investors contemplating “land banking” an empty commercial lot to comprehend.

In comparing property sales, the appraiser must evaluate properties with similar highest and best uses.

After identifying the highest and best use, the valuer must then ascertain the most probable value that a seller and buyer would acknowledge on the valuation date:

The use needs to be lawful.

The application must remain within the bounds of probability (it should be plausible and not conjectural).

The use should align with the expectations of a specific buyer’s imagination.

The usage must be cost-effective.

Market evidence and comparability

When assessing properties, valuers depend on real sales rather than homes that are presently available for sale:

• They take into account properties that have comparable traits, quality, and are situated in the same location.
• The transactions conducted must attract the same market segment for the property under appraisal.
• Land utilization and possible usefulness ought to be alike.
• The location must attract the same audience.
• Comparable title and duration.
• The topography of the land, along with its shape, slope, and view, can either offer opportunities or pose challenges for development.
• Comparable amenities and services, for example, assessing a rural property with town water access against another with the same water supply.
• The transaction date and the valuation date should be near each other, with some modification applied for the time elapsed; a significant adjustment for an extended period would not serve as solid evidence.
• No two pieces of land are alike, so modifications must be implemented. There is no strict guideline.

Nevertheless, the most trustworthy comparable sales are those that necessitate the fewest and simplest adjustments.