Knock down Rebuild - Bank’s Consent

SwaggyE on 03/03/2025 - 19:04
Last edited 04/03/2025 - 07:38 by 1 other user

Hi all, just wanted to check with fellow OzBargainers, did you all have to get consent from the bank before doing a KDRB?

We’re in the process of planning a KDRB (fully self funded) and have seen on internet it’s recommended to get consent from the bank first given they’re partly the owner of the property which makes sense. We’ve since sent a request for consent but they’ve responded saying they don’t consent to owner build or self fund on Bank’s guarantee. Not really sure why they wouldn’t accept it to be honest.

We might discuss further with the bank until we get consent or we might just refinance to elsewhere.

We’re sitting at 40% LVR for reference.

Just curious is this what most people do?

Financial

Comments

  • MS Paint on 03/03/2025 - 19:13
    +9

    If you knock the house down and then choose not to rebuild the property loses all of it capital improved value. Of course the banks want to know about that.

    • SwaggyE on 03/03/2025 - 19:18

      Yeah absolutely that’s my assumption too but strangely I couldn’t find anything from most bank’s websites about self funded KDRB.

    • iDroid on 04/03/2025 - 10:55

      Easier to seek forgiveness than permission scenario?

  • apu on 03/03/2025 - 19:14
    +3

    It's actually a very interesting question. I did a KDRB about 7 years ago, and the thought of asking for consent never crossed my mind.

    • SwaggyE on 03/03/2025 - 19:16

      Have they found out yet? I wonder what their reaction would be if/when you sell property for a much higher price. I mean they probably don’t care unless it’s being sold much lesser and lower value I guess?

      • JimmyF on 03/03/2025 - 19:24
        -1

        I wonder what their reaction would be if/when you sell property for a much higher price

        Its not like the bank owns a fixed share of your house that goes up and down with the value of the property. They wouldn't care if it sells for more.

      • apu on 03/03/2025 - 19:56
        +1

        They never found out. I refinanced as soon as it was completed so was able to get a better LVR because the overall value of my place increased (that took a new onsite bank valuation). I then refinanced again to another major bank. Then ironically, have recently returned to the original bank I was with when I did the KDRB (but no onsite valuation required, only a desktop valuation, but the images/profile of my house on domain/real estate shows the old house). PS. Can you tell I chase bank cashbacks?

        For the record, I was self funded KDRB as well, no construction loans or anything. Paid for the demo and each building stage with my own $.

        • Protractor on 03/03/2025 - 20:00

          The way house prices escalate I don't think banks would even look in the rear-view mirror these days. As long as they don't lose.Let's face it they have more $$ and access to legal teams anyway, so if it mattered they'd be all over it, (I presume)

  • verio on 03/03/2025 - 19:21

    Did a KDRB, had the same question. Asked my mortgage broker, he got in touch with my bank at that time - they "informally" confirmed that it would not be a problem.

    My understanding is that there is a no proper formal way to do that. Not that a bank would mind doing that, it is just they don't have a process to do that.

    • SwaggyE on 03/03/2025 - 20:05

      Very interesting - so I’m assuming you didn’t get a consent from the bank?

  • JimmyF on 03/03/2025 - 19:26
    +2

    We’re in the process of planning a KDRB (fully self funded)

    What do you mean fully self funded?

    As in you have all the funds needed and will be paying a builder to do the KDRB? Will you be going the owner builder route?

    Honestly can't see why they'll have an issue if you have the funds.

    Maybe pay the loan out you have and then borrow to do a KDRB :)

  • RogerLoger on 03/03/2025 - 19:38
    -1

    Whoever you engage to do the work should be able to let you know what to do (unless you use a crook). However, banks protect themselves first and foremost. You can be 99.9999% certain you cannot knock over a house that has a mortgage on it without it being a breach of mortgage conditions. Not gaining written permission would likely leave you open to legal action.

    • brad1-8tsi on 03/03/2025 - 19:58
      +2

      I know a few builders. None would know the process between the owner and their mortgagee. They just need to know the progress payments will be paid.

  • djkelly69 on 03/03/2025 - 20:01

    Was the bank saying they don't consent to KDRBs as in they don't agree for people to do them, or are they saying there is no need to get their consent to do it?

  • Benoffie on 03/03/2025 - 20:18

    Absolutely you have to tell them.

    As an aside, I had to email my bank today as my folks have decided not to build and instead want to buy established. Sounds stupid - money is money - but you need the lender's approval to change the property the loan will be held against (and subsequently, the land and capital values)

  • joka on 03/03/2025 - 20:19
    +8

    You have ozbargain’s consent to proceed, that’s all that matters.

    • SwaggyE on 03/03/2025 - 20:38

      Cheers mate that’s exactly what I was looking you’re the real joka :D

  • star-ggg on 03/03/2025 - 22:08

    Is it a smaller lender? If so could very well have an internal policy to not take the risk of owner rebuilds.

  • miwahni on 03/03/2025 - 22:23
    +1

    Your loan docs would have included a memorandum of common provisions. One of these is usually along the lines of "you must not do any of the following unless the bank agrees in writing….a) make any structural alteration of the property; b) Remove any structures from the property, or c) Do anything or allow anything to be done which might reduce the value of the property.

    So for argument's sake, let's say you have a property worth $1m of which $800k is land value and $200k is improvements, and this property secures a loan of $800k ie 80% LVR. What's it worth once you knock down the existing building? Suddenly the bank's exposure is 100%. Not saying they'll necessarily be aware that you've done this, but if they find out they can request you reduce the exposure back to the original 80% ie require a permanent principal reduction of $160,000. In extreme cases they can call in the loan, in instances where your redevelopment contravenes bank policy. Eg one bank I worked for had a hard and fast maximum of two dwellings per title. We had a bloke do a knock down and rebuild of three townhouses then apply to us for subdivision permission. Not only was his permission denied but the loan was called in and he was given a month to find finance elsewhere. This was due to treasury/ funding restrictions and not just someone being a hardass on the day.

  • Wiadro on 04/03/2025 - 00:20
    +1

    Just send in the demolition company.

  • Dollar General on 04/03/2025 - 07:03
    +3

    Check what your contract with them states

    Really the bank only cares about your repayments being on time and in full. Just make sure you have the correct insurance in place to cover you should something disastrous occur during the rebuild

Login or Join to leave a comment
Login Join