How to Prevent Your Property from Repossession in Australia?

The 2 years of high interest rates to curb rising inflation has created a huge problem for some home owners and investors. Times had been tough for these 2 years and there are no significant relief in sight. Some home owners and investors who had bought during the historia low interest rates since GFC and during the COVID-19 pandemic are feeling the pain now, as mortgage rates rose from around 2% to around 7% currently.

We're seeing many home owners and investors falling behind the mortgage repayments, as the rental income is no longer sufficient to cover the interest charged by the banks and lenders and the ongoing maintenance of the properties. While the lucky few had been able to reduce unnecessary expenses to try to ride through the tough times, some are finding themselves struggling to maintain a basic living with the overbearing costs of mortgage. More and more mortgage holders are getting calls from their banks and lenders to discuss their payments. Many are in a situation called mortgage stress at the moment. If this goes unmanaged, home owners and property investors can find themselves in a Mortgagee in Possession situation, where the property being mortgaged are being forcefully sold by the lender.

In this article, we will discuss what you can do, and how you can avoid getting into this situation.

How Can You Prevent Your Property from Repossession in Australia?

Let’s go back to the basics of investment and money management. By being prudent with your spending and borrowing, you can usually avoid falling into a mortgagee in possession situation. In simple terms, the key is ensuring your income exceeds your expenses. However, during tough times, this can become more challenging.

Here are a few simple, fundamental concepts to help you stay on track:

1. Avoid Overextending Yourself

Never stretch yourself beyond what you can afford. Assess your financial capability meticulously. While a mortgage broker may suggest you can borrow a certain amount based on your income and expenses, is it crucial to ask yourself:

• Do you need to buy a property at that price point?

• Can you comfortably manage the monthly mortgage payments?

• Is investing in this property the best decision for your financial situation?

• How would you comfortably afford the mortgage, if you lost part or all of your income?

  
  

While mortgage brokers aim to help you find the best mortgage deals, no mortgage brokers or financial experts know you better than you do. Always remember, mortgage brokers often earn commissions based on the amount you borrow, so some may encourage higher loans. While most mortgage brokers and lenders follow the strict Responsible Lending code of conduct, it is important to be cautious and prioritise your financial stability over borrowing more.

2. Avoid Negatively Geared Properties

Negatively geared properties are investments where your expenses outweigh your rental income, with the hope of future capital gains. Essentially, you’re losing money upfront, expecting to gain it later. This strategy is usually suited for wealthy investors who can afford to absorb those losses without affecting their lifestyle.

Unfortunately, many novice investors are lured by the promise of future growth, often marketed by property spruikers and investment strategists. But negative gearing can be risky, especially during economic downturns or rising interest rates.

Before considering a negatively geared property, ask yourself:

• Can you afford the losses if things don’t go as planned?

• How will rising interest rates impact your investment?

The reality is that negative gearing is losing money today in hopes of saving on taxes. It's like losing a dollar to save 30 cents—not a smart idea for most. And if you find yourself investing with high interest rates without fully understanding the risks, you’re walking a dangerous line.

In the Australian investment environment, if you like the idea of losing $1 to save 30 cents, there are plenty of investors willing to give you 30 cents for every dollar you send their way—of course, in jest! But that’s the point: nobody should desire this kind of deal.

What should you do, if you think your property may be Repossessed?

So, what happens if you find yourself struggling to make that mortgage repayment? If you are concerned that your property may be repossessed due to financial strain, it's essential to take proactive steps to mitigate the situation::

1. Review your expenses:  Conduct a thorough review of your expenses to identify areas where you can cut back. Look for non-essential expenses that can be eliminated or reduced to free up more funds for mortgage repayments..

2. Increase your income:  Consider ways to boost your income, such as taking on a second job or pursuing opportunities for higher-paying employment. Generating additional income can help alleviate financial pressure and improve your ability to meet mortgage obligations

3. Assess Troublesome Properties:  Evaluate which properties in your portfolio are causing the most financial strain. Identifying these properties allows you to prioritize them for action, whether through restructuring loans, refinancing, or selling the property.

4. Explore Refinancing: It might be too late, as the banks would have tightened their lending, so, you might not be able to refinance. But it is worth a try. If you're using a mortgage broker though, be wary what you info you share. Mortgage brokers usually have connections asking for cheap properties. They will be low balling your properties..

5. Talk to the Bank: This might be counter-intuitive, but remember, the banks are not in the real estate business. They want their money and are keen to work with you to try to recover what they are owed. Explain your situation to them, and they might be able to work out a payment option with you. They may allow you to delay your payments, or restructure your mortgage to lower your monthly payments.

6. Explore Property Sales: If you're struggling to maintain multiple properties, consider selling the properties that are causing the most financial stress. OR selling the properties with the most equities. Liquidating assets can help alleviate financial burdens and prevent further escalation of debt. There is no single best solution, but if you would like to have a chat with us, we can help you assess your best option.

7. Seek Professional Assistance: Reach out to professionals such as buyers advocates and property investment advisors like us, or financial advisors who can provide guidance and support during this challenging time. Consult with financial advisors or property experts to explore viable solutions and navigate the repossession process effectively.

8. Be Proactive: This may be a stressful moment for you, but it is not the time to be emotional. Don't delay in seeking assistance if you anticipate repossession. Acting promptly allows you to explore options and take necessary steps to protect your financial interests before the situation escalates further. You need to avoid getting yourself into a repossession situation.

We hope you do not find yourselves in such a situation. But if you do, talk to us. Our property advisors are happy to understand your situation and offer proactive solutions for avoiding repossession. Our expertise, network of buyers, and timely intervention can make a significant difference in preserving your financial well-being and securing a positive outcome.

Our buyers advocates in Melbourne have a constant pool of buyers who are ready to buy your properties. If your property is what our buyers are looking for and bought it, you can save yourself over $30k-$100k or more in sales commission and sales expenses. It is quite a significant saving, if you are trying to maximise your property sales, but you will need to come to us before the bank initiates their debt management and repossession process.

Disclaimer:

Information provided here and anywhere in our website is for general information only, and should not be taken as financial or legal advice. It does not take your personal circumstances, needs and requirements, etc, into consideration. You should always seek formal legal and financial advice for solutions to suit your individual circumstances.