By George William Root
I remember as a child sitting at my Dad’s feet as he had a beer with one of his friends. They were complaining about money, the economy, their bosses, the usual conversation. Taxes are extortionate, we are underpaid and meanwhile the Insurance companies are ripping everyone off. It’s a racket! Everyone knows someone with a story about how they didn’t get paid out on their insurance. Whether it’s travel insurance that doesn’t pay for doctors’ bills when you get hurt skiing or workers compensation that didn’t pay out because of a few lines in the fine print. Insurers are just out to make money, not pay claims. 

Some years later a close family friend got into a car accident with her two children in the car. The children only suffered very minor injuries, but the mother broke her back and neck. Whilst she regained some movement in her arms and torso she was stuck in a wheel chair for the rest of her life. When we went to visit her two months later the house looked completely different, there was a ramp leading up to the front door, a stair lift to go between the floors and she had a new car that was fitted out so it could be driven without the use of her feet and legs. They also had someone working at the house with them to help take care of the children whilst her husband continued to work in his job as an airline pilot.

I remember asking my mum about what had happened, and she said that they got an insurance payout. I felt confused, because knowing that insurance is a rip-off and can’t be trusted, why did they pay for all this stuff? She had received a one million dollar permanent disability pay-out on a policy she had applied for through her employer where she worked part time as a secretary. In the late 1980’s that was a tidy sum, and with those funds they were able to minimise the damage that a terrible accident created for their family. She was able to pay off the mortgage on their family home and pay for renovations to allow her to keep living her life with her disability.

The truth is Insurance is just like the car she was driving. There are cars that are held together with cheap glue and staples, and there are cars that are built by engineering masterminds that will protect you when the worst happens. The same is true of anything. 

Some insurers advertise heavily on TV, you can call a number and twenty minutes later you have a million dollars’ worth of life cover that may potentially not be worth a dollar. When it comes to claim time, the rules are rigorous and you must fit clearly defined criteria to obtain a payout.

We don’t deal with careless insurance here, and it doesn’t take twenty minutes to get insured. It’s an in depth process where we disclose every medical detail to an insurer. It can take a month or more of interviews, assessments and advice. As your adviser I am here to be your ally through this process, to get you the right type of cover and the right level of cover. To assist you through the claims process and to review your situation to make sure that everything makes sense as your situation changes.

An ‘easy’ insurance policy is not your friend at claim time, but a real financial adviser and insurance company can save your livelihood at claim time, and take a situation that could ruin your life and rectify it. A couple of million dollars doesn’t bring back a lost loved one, or give you back the use of your legs, but it will make life a lot easier. 

There are so many interesting myths about who the 'bank valuer'  is, and what they do, or even how hard they work, that I  thought I'd share some industry knowledge on the subject.

A Property Valuer is a qualified professional whose job is to assess the value of property. Banks and other lenders engage property valuers to undertake valuations to determine the worth of property when mortgage loan applications are made and to assess the feasibility of the proposed purchase.  They are tertiary educated and accredited by the Australian Property Institute (API).  Banks do not take into consideration real estate agent appraisals, as these are not objective or independent. 

What does the valuer actually do?

A Valuer may only spend 5-10 minutes at your house and may seem in a rush, this is because they normally have many appointments to make. Behind the scenes the Valuer is doing a lot of work. They are not so interested in the overall presentation and cleanliness of your house (although some decorum is surely to be appreciated) but they are interested in the quality of workmanship, build of the house, block features/frontages, house size and so on.

Many firms now adopt a process managed entirely through a valuation management system (VMS). Through the VMS every detail, record and dealing with the property is recorded for future reference. In general terms, to value a property a licensed Valuer will do the following:

1. Make contact to arrange inspection.
2. Compilation of property information - title zoning, problems such as bushfire or flooding and sales history.
3. Internal and external inspection of the property – detailed information is recorded directly into the VMS. The property is digitally measured and photographed.
4. In the office – The Valuer researches sales evidence and analyses the property against that evidence.
5. Provide required responses to risk questions.
6. Run a draft report against quality assurance guidelines.
7.  Check of the valuation by Senior or Managing Valuer.
8. Prepare and send the final report – typically within 24 hours of inspection.
   

Valuers are under pressure to finalise reports quickly. For the best and most efficient valuation you can provide the following:

• Correct address or title details
  
• Accurate contact details of an available person.
  
• If tenanted, contact the agent so they may provide notice for access and arrange a suitable time.
  
• Contract documents, dated and signed by the vendor where possible.
  
• Any other relevant information in digital form such as building contract or specifications and plans.
  
• Rates notice, contracts for recent works.
  
• Quotes for work to be completed.
  
• Sales evidence.
  

So for optimal results, keep the place neat and tidy, provide any information to the Valuer that might support your case, and then leave them in peace to get on with their job.

If it’s got anything to do with property, the chances are that a Licensed Valuer will be able to provide you with some of the best information available to assist in your decision making process.

What can you do if you disagree with the bank valuation?

The valuation of any property is a serious and involved process, reliant on confirmed sales in writing. If an individual truly believes in a particular value of their property confirmable sales data must be available to back it up. This sales data must include (but is not limited to):

• Recent (under 3 months preferred but less than 6 months is OK)
  
• Close by – not another suburb unless the area is remote and the property is very closely equivalent
  
• Same size property/land/aspects/house size
  
• Confirmation of sale
  

The perception that listing or asking prices on property can be used as an ‘indication’ of value is false. They in fact offer little more than an agent’s capacity to place a number on a board. A home cannot be valued based on someone’s ideal sales price. Confirmed sales in a current market (no more than six months old) are essential elements of a professional valuation.

The Lenders and how they see things

Lenders compliance managers are constantly finding ways to make the process more objective and at arms length. It is very uncommon to have a bank valuer come from the actual branch, although this does still happen, it is very rare.. Lenders are driven by their own concerns and those of the industry regulator (APRA) evidenced by the adoption of some of the following practices:

• A reduction in the number of Panel Valuers available in the market
  
• Instruction for at least 2 valuation firms almost always on a random basis (creating objectivity as you cannot choose your Valuer)
  
• Auditing of Valuer performance
  
• Standardising Service Level Agreements (SLA’s) – A preference for National Agreements with Valuers
  
• A reduction in contact between Valuer and Lending Manager/Broker. Most lenders are now using RP Data and Valex to manage the valuation order and valuer preference
  
• The introduction of a prescribed process for reviews and queries
  

Overall, it is important to take heed of the important and crucial role valuers play for the banks. They are not 'on the banks side' they do err on the side of caution but they are also under pressure to keep all parties satisfied with the outcome. As such, if you have a dispute with a valuers valuation, the best thing to do is keep calm, look at the figures they have used, and find evidence to the contrary to support your claim for a higher valuation. I have on many times assisted clients dispute a valuation with success, and worked together with the valuer to find a common ground. An important part of this process is to have data, to help support your claims.

Big changes have been developing in the lending sector in relation to investment home loans. This will affect many of you who already have, or are considering investment lending. This issue is for current and developing changes.  New announcements are coming out weekly so please follow us on Facebook or Twitter for individual lender announcements, or call us to discuss loan switching, loan review, or other general questions you may have. For those without investment lending, please feel free to forward this article to investors you know who will be interested in the changes, given there are some tight deadlines below from two major banks. These announcements are specific to my current lender panel so will not represent all lenders in Australia. Some lenders are increasing on interest only regardless of whether they are investment loans or not, and some are restricting their maximum loan to value ratio heavily, this is mostly in relation to investment loans but some have also reduced owner occupied loan LVR’s.

AMP

No longer accepting investment lending including self managed super fund lending. Variable rates on existing investment loans are to increase by 0.47% effective 7th September 2015

ANZ

Variable rates for investment loans are increasing by 0.27% as of the 10th of August. Fixed rates for investment lending have already increased by up to 0.30% across the various terms on offer.

Commonwealth Bank
Variable rates for new and existing investment home loans will increase by 0.27% effective Monday 10th August 2015. Fixed Rates all increased between 0.10% and 0.40% across terms for investment loans as of today

Bankwest

Super Start Home Loans reduced to 4.09% yet investment loans increased to 4.39% across this product range effective 28th July

ING

All investment lending is capped at a maximum of 80%

Owner occupied refinance loans capped at 80%

Macquarie

Fixed and Variable rates increased today by 0.27% for investment loans

NAB

Variable rates increased by 0.29% as of the 10th August for all interest only loans, regardless of whether they are investment or owner occupied loans.

Interest only fixed rates for owner occupied and investment will increase by 0.29% on the 10th August. It is uncommon to have notice so there is still time to ring your bank and lock in the current fixed rates.

Why are these changes happening?

APRA, under advice from the Reserve Bank, are monitoring banks lending practices and requiring that they limit their investment lending growth to 10%. The banks are therefore adjusting the attractiveness of their investment lending in order to slow growth. As a means to balance their lending portfolios they will be more aggressive in obtaining larger shares of owner occupied lending markets. As a result you can expect to see better discounts for owner occupied loans, and higher margins for investment lending. We are already beginning to see some refinance campaigns announced for owner occupiers, enticing borrowers to leave their current lender and move their borrowings over. This typically attracts sub 80% lends as nobody with LMI fees wishes to move and pay again, so this will be a popular strategy for banks and lenders in balancing their owner occupied vs investment books, whilst bolstering capital holdings and lending growth whilst still throttling the investment growth.

Other recent changes

All major banks have adjusted their loan to value ratios for investment lending. In many cases, you must now have larger deposits for investment loans, in nearly all cases you will require 10% plus costs, unless you have a very strong equity position in other property. Many smaller lenders and banks were already in this position due to earlier targeting by APRA to balance their investment lending growth or hold more capital.

Some lenders, such as Bankwest, St George, and ING will restrict investment lending to only 80% already. These changes have been occurring over the past months.

Some lenders are now also adding up to 20%-25% buffers on investment loan repayments, and/or no longer including the negative gearing benefits for borrowing capacity. Nearly all lenders are now assessing your new home loans at nearly 3% above your actual repayment also. Further to this, the housing expenditure measure (which is an industry measure for the cost of living for each household, adult and child) has been revised up a number of times, so this will drive affordability down for new loans. Overall, borrowing capacities are being affected. So it is important to obtain verifiable employment sources, be consistent in your incomes, and at all times, talk to your brokers about how to improve your borrowing power if required.