By Doug Daniell
Due to changes by the Australian Prudential Regulatory Authority (APRA)which restrict deposit-taking lenders’ investment lending, non-bank funding has again come into its own. This will have a profound effect on how brokers do business.
Back in the mid ‘90’s, when non-bank lenders first became mainstream lenders in Australia, they had a price advantage that made them attractive to borrowers.
Then, due to the complacency of the banks, with their greed and fat margins, the non-bank lenders generally had a price advantage of over one per cent on owner occupied loans, and as investment loans through banks were one per cent higher than home loans, investors flocked to them to save two per cent on their loans and get the personal service that mortgage brokers offer.
The banks were forced to reduce their margins from the “fat” four per cent they were used to 1- 1.7 per cent to match the aggressive pricing of these non-bank lenders – with Aussie home loans and RAMS the most the two most prominent lenders. Funding sources like PUMA and PIBA provided the funds and securitisation kept the system running.
The non-bank lenders not only reduced mortgage rates in Australia by up to 250 basis points, they also created the mortgage industry we have today. Unfortunately, few of the current mortgage brokers acknowledge the debt we owe to these non-bank lenders and now place about nine out of 10 loans are with major banks.
However, everything goes in cycles, and now the non-bank lenders are again able to be nimble and provide the answer that the market requires with products and lending policy to fill the gap the banks have left with their overreaction to APRA’s instructions to restrict investment lending growth by increasing interest rates, servicing rates and reducing LVR’s.
Without being directly regulated by APRA, the mortgage managers and non-bank lenders are able to offer the products and credit criteria that investors have received for the past few years. Simple credit criteria like 90 per cent LVR and using actual repayments on other property mortgages are still available.
If mortgage brokers want to be able to keep arranging loans – particularly investment loans. Now is the time for them to dust-off the contact cards of all those mortgage managers.
Doug Daniell has been active in the property and finance industry for over 30 years. He is Chief Executive Officer of Origin Finance and Walker & Miller Training. He is also Managing Partner of Chan & Naylor Finance.
Disclosure, Doug is also a major shareholder in mortgage manager, Mortgage Mart of Australia