Ask LH: Why Does The Bank Want My Rates Notice?

Hey Lifehacker, I'm in the process of asking my bank for a loan secured against a property I own. I'm wondering: why do they always ask me for my rates notice? What does this tell them? Why would they want that when they can do a simple search and see I own the property in question? Thanks, Bemused Borrower

Paperwork picture from Shutterstock

Dear BB,

The ways of banks are often mysterious, and filling out any paperwork is invariably going to involve some wailing and gnashing of teeth. That said, the request for a rates notice is not that mysterious or onerous.

It's perfectly true that finding out if you actually own a given property is a relatively trivial task, especially if you're borrowing against a house which you have an existing mortgage for. However, the rates notice demonstrates something else to the bank: that you've remained up-to-date with property payments, and what the notional valuation of your land is according to your local council. It forms one more piece of evidence that you're a reasonable credit risk, and that there's an asset backing your loan if you do happen to default.

If any Lifehacker reader works as a loans officer and has more insights, we'd welcome input in the comments. Ultimately, however, you'll just have to put up with the documentation requests if you want the money. If you already own the home, that's unlikely to be an issue, but you still have to work through the process.

Cheers Lifehacker

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Comments

    Edit: On reconsideration, I guess the loan is a private contract between you and the bank, and realistically they can impose whatever conditions they want.

    Last edited 02/12/13 9:37 am

    My understanding is that in a repossession scenario, the council has a higher priority than the lenders for recovering money. Given that this is not ideal for the lender, they want to understand potential risks as they are today. This of course in addition to what is mentioned in the article regarding overall credit risk assessment.

    It should also be noted that not all lenders require rates notices, so if you have a problem with supplying your rates notice for whatever reason, you do have a choice.

    The big change that is coming in March next year are changes to the privacy laws which allow Repayment History Information (RHI) to be collected about you. RHI will record whether you have actually made all your payments or not, giving the lenders a much clearer picture of your credit risk. This change brings us more in line with other countries such as the U.S where they use positive reporting. This tracking had already started so next year will be interesting..

    It's just a simple way to show home ownership with a property title search (the costs of which vary from state to state - but there are costs). It also shows the lot number, which the lender needs to get anyway to get the actual title and put a caveat on the property, if needed.

    Council rates are a good indication of whether other bills are up to date. If the applicant is behind with their council rates, chance are that many their other bills are behind too - they tend to pay their 'most important' bills first.

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