Banks blocking homeowners from funding

By From: The Daily Telegraph, 28 August 2010

BANKS are denying funds to homeowners looking to upgrade and move into a bigger home.

The hardline stance is curtailing the property market by delaying home purchases and forcing homeowners to sell their homes before buying a new one.

Industry experts said lenders are increasingly blocking homeowners from bridging finance - intermediate loans that finances the purchase of a new property while existing property is sold, The Daily Telegraph, reports.

Previously a common strategy for people selling one home and buying another, banks now claim bridging finance can produce bad debt while other lenders do not even offer the product.

"These loans are now very hard to get, basically because it is just not worth it for the banks," a mortgage industry expert said.

The static property market is another reason why banks are loath to approve bridging loans. Several lenders are believed to have been caught out approving such loans to homeowners, only for the eventual sale price of the old home to fall well short of what was agreed to.

"To put it simply, the economics are against bridging loans, and banks don't want to be increasing their [bad debt] provisions," the expert said.

However, representatives of the major banks yesterday maintained they were "open for business" and were continuing to offer the product. Unfortunately, they would not provide any figures that would support the claims.