How to spot a mortgagee sale as 880,000 Aussies switch from fixed-rate to variable loans

With the reality of many Aussies moving to more expensive variable loans — experts say it could be a good opportunity for savvy homebuyers. Here’s how to spot a mortgagee sale.

Distressed owners’ mortgage ‘pain’ may open the door for savvy buyers.

The Reserve Bank of Australia has estimated about 880,000 Australian mortgages will swap from low fixed-rate loans to much more expensive variable loans this year.

With the vast majority expected to do so in July and August, Melbourne-based buyer’s advocate Frank Valentic said he was expecting a “bit of pain” to come as owners either chose to get out while they were still in control, or were forced to by their bank.

RELATED: Homes seized for resale in as little as 13 months

Mass exodus of landlords to cause major rental fallout

Are international students putting strain on rental crisis?

While heartbreaking, Mr Valentic said this could be good news for savvy homebuyers — especially those looking in more affordable markets or in areas with holiday homes.

The Advantage Property boss said the reality of a mortgagee sale was that banks didn’t need to get top dollar for a home, they just had to cover the loan — typically 80 or 90 per cent of the true value, and sometimes even less.

For buyers that could mean a home last sold for $1m might have a bank willing to sell for $800,000, and a seller trying to get in before their lender took control might well sell for $950,000.

Some mortgagee sales will have this disclosed in advertising, but the Advantage Property boss said now was the time to start looking very closely at property titles and contracts of sale in order to spot stressed buyers before the bank moved in.

“The bank or one of its subsidiaries will lodge a caveat,” Mr Valentic said.

He said his firm had bought a home recently where the vendor had been eight quarters behind on their council rate payments. When offered a short settlement period, the seller had accepted a lower offer than others being made that needed more time to finalise the sale.

Mortgagee sale: 14 Dillon Street, Ramsgate, NSW: House, 5 bed, 4 bath, 2 car garage, which goes to auction Saturday July 22. Picture: Realestate.com.au

However once a home goes to a mortgagee auction, Mr Valentic advised turning up but not to bid unless no-one else was.

“There can be competition with five or six bidders and then it won’t be a bargain sale,” Mr Valentic warned.

Stockdale & Leggo Real Estate chief executive Charlotte Pascoe said once the bank had a home the agent would generally be “happy to say it’s a distressed sale”.

But Ms Pascoe noted that it was almost always better for sellers to get a home onto the market before the bank seized it, and a good agent would do what they could to ensure the home sold for the best price — potentially avoiding revealing their vendor’s distress.

“The agent will tread a fine line saying it’s a very keen seller, without saying it’s distressed,” Ms Pascoe said.

“So buyers will need to ask about the motivation of the vendor … how driven they are to sell.”

Stressed buyers that may be forced to sell by their bank may sell for 80-90 per cent of the true value.

However she said there could be signs of financial pressure on the seller, such as the home looking a bit drab, with paint and furnishings that you might have expected to be updated before a sale left looking worn instead of being refreshed.

For buyers, spotting a challenged vendor’s home and making a fast offer could be key to success, with the market currently quite buoyant in many parts of the country due to a lack of homes for sale.

MORE: Pollie ‘plonkers’ blamed for Australia’s housing crisis

Hoarder home full of junk sells for millions

“What we know now is that most properties will sell and the likelihood of a really good result is better now than it might be if you wait until you are scraping the bottom of the barrel,” Ms Pascoe said.

That said, she did advise financially stretched vendors to listen to their agent. If an attempt to sell today fell short of their hoped for price, it is possible the bank could accept a lower price that only just covers their costs at a later stage.

Mr Valentic advised those worried they might wind up on the wrong side of a mortgagee sale not to let things get to the point where the bank seized their home.

Frank Valentic of Advantage consulting.

“Keep at least six months of repayments in your bank account so you are not in that position of being forced to sell,” he said.

For those struggling to keep that buffer, asking to swap from a principal and interest loan to an interest only one might give them lower payments for a short while and help them hold on until interest rates fall.

If all else fails, he said “try to make sure you sell yourself”.

How to spot a mortgagee sale

● Advertising indicates it is a mortgagee sale or auction.

● The contract of sale has a caveat from the owner’s bank.

● The contract of sale shows the vendor is behind in payments to the local council.

● Ask the agent what the vendor’s situation is and if they need a quick settlement, especially within 45 days.

● Look for homes that aren’t styled and are presented poorly, or has a tenant in place for a month or two, which can indicate a seller is trying to move quickly.

● Homes with paint damage and other easy fixes left untended can also be a likely bet for those being sold under financial duress.

● Homes can be quoted lower than others in the area as the bank has a lower figure for the reserve.

Source: Advantage Property.

---

Sign up to the Herald Sun Weekly Real Estate Update. Click here to get the latest Victorian property market news delivered direct to your inbox.

MORE: AILA awards: Ned Kelly’s childhood Beveridge home up for heritage landscape gong

James Cameron selling his California ranch for $49.1m after moving to New Zealand

Actor Gyton Grantley to lease out townhouse while on 12-month family sojourn to Italy

Originally published as How to spot a mortgagee sale as 880,000 Aussies switch from fixed-rate to variable loans