Saturday, June 23, 2012

Research request

I need some help with some research.


I have an Australian based client who wishes to purchase a residential property as an investment, borrowing 80% LVR on the property (to avoid the cost of mortgage insurance) and borrowing against his gold holdings for the remaining 20% (instead of cashing in his gold to fund the 20% gap).

I have done some research already which consisted of:
  • Asking my finance broker to ring around their financing partners.
  • Spoken to lending managers at Arab Bank and the Bank of China.
  • JP Morgan (for a laugh if nothing else)
So far I have failed to find any lender that would entertain such request. I also asked on my own behalf "could I borrow some money to buy physical Gold or Silver, using the purchased metal as a security?" Again no takers.

Actually is was a fun exercise pointing out to the lenders that they are willing to lend money on a new car, using said car as the security in the full knowledge that the moment the car is driven out of the showroom the loan is underwater and the security will continue to decrease in value forever. Yet they won't lend me money to purchase an asset that has been increasing in value by 10 - 15% pa for the last ten years as it too "risky" to use as a security.

These conversations were particularly funny when speaking to the Arab Bank loan officer at a branch in a predominately middle eastern suburb of Sydney, they said "no we don't accept gold as collateral", when almost every person walking past their branch owns some gold - mindless. The Bank of China was equally useless, I asked the loan manager "gee if a Chinaman won't take my gold as a security what hope I have got of finding anyone who will?" he responded "not much mate". 


Does anyone know of a lender in Australia who will lend money using physical Gold or Silver (not an ETF) as full or part security?   

I would also like to hear from anyone who knows of such practices outside of Australia, such as Turkey and India.

To answer please leave a comment below. This can be done anonymously.

Thanks in advance. 


  1. Very interesting post.
    I will ask my broker, as I am seeing him soon for the same reason.

    1. Thanks, good luck. Please let me know the outcome.

  2. Problem is mortgages, cars are registered and are tracable. How can gold be traceable if you hold it in your possession? There is no title deed to the gold that you own as it is pretty much money that is not affected by inflation. The gold would need to be surrendered to the bank to hold as collateral as you know this cannot work as they will need to use in their fractional reserve banking to lend out on it and will mysteriously evaporate. There are $200 face value gold Australian coins that are recognised by the banks but with 9 grams of gold, the gold bullion value is at about $477 but it would not be wise to give it to the bank.
    Is it worth to buy a residential investment when you have to pay interest on it, oh but you can negative gear. Big deal. You are at the mercy of the bank with fluctuating interest rates, if your tenants pay, if your tenants dont wreck the joint. What about if you cant get tenants. What about maintenance costs? What about strata costs? All tax deductable, but you are still forking out money out of your pocket.
    Also start up costs you have to pay stamp duty, solicitor costs, bank fees, What about if you sell at a profit, you have to pay about 20% on the profit in capital gains tax
    What if property prices dont go up, what a damn waste of time and money. What about if the debt exceeds the property value? Bankruptcy? Mortgage insurance will protect you? I don’t think so, YOU PAY the mortgage insurance to protect the bank for any losses, then the mortgage insurer chases you, what a wonderful system we have.

    Who makes the money but the government, the banks, the brokers, they are the ones making a profit out of properties. Maybe it is better to get into one of those businesses.

    So you waste all that effort in property when gold just quietely appreciates on its own merit. In hyperinflation, and you hold onto the gold, you maybe able to be properties out right. It looks like a deflationary situation at the moment but with all the debt in the world, and worthless paper money, who knows what will happen.

    You hear about the good stories in property, but you dont hear the bad. Detroit?

    The property band wagon is alive and kicking at the moment, but I see that this is due to China buying Australia by offloading all that useless American dollars. Once they stop buying (because the US dollar collapses??) then you may see the property prices fall in Australia.