At the start of the year we penned an article titled, “Will 2019 be the year of private lending?” where we looked at the implications of the Royal Commission and the possible outcomes for the private lending industry. We thought we’d take a look back and see whether our predictions came to fruition.
A move towards transparency
First off, we discussed the level of distrust of the major banks following Commissioner Hayne’s report and how we believed borrowers would look to lenders with more transparent lending processes. While scandal after scandal has rocked the big banks, the latest being Westpac’s money laundering and child exploitation crisis, non-bank lenders have doubled the number of loans they are writing, according to one report. This isn’t to say that all non-bank lenders are transparent with their fees and interest rates. An ABC investigation recently revealed the unscrupulous practices of some non-bank lenders which has thrown a dark cloud over the industry. Private Mortgages Australia urges all borrowers and brokers to have an in-depth look at any lender before signing up for a loan. Here’s 10 questions we recommend you ask any private lender before moving ahead.
Continued tightening of the purse strings
We probably didn’t get this one quite right. In May APRA announced that banks should change the way they assess customers’ ability to meet their mortgage repayments in a move that would let people borrow more. The Coalition government also announced the First Home Loan Deposit Scheme which will allow some first-home buyers to purchase a property with as little as a 5 per cent deposit from 1 January 2020. Despite these measure and lower interest rates, the Big Four banks have not seen an uptick in customers with total operating income (cash basis) declining 3.7 percent according to KPMG. This reflects subdued lending conditions, the squeeze on margins and intense competition in mortgage markets, which has resulted in their market share of the total mortgage market decreasing 92 basis points to 81.2 percent and their share or new loans decreasing rapidly.
Rise of commercial brokers
We previously stated that in these uncertain times, borrowers will increasingly look to brokers for guidance and advice. This has certainly been the case. Commercial brokers have reportedly seen an increase of enquiries from borrowers who until this year would have been acceptable bank customers. Reportedly non-bank lenders settled 112 per cent more broker-introduced commercial loans in FY19 than they did the year before as banks face “capability challenges”.
What has PMA seen?
In the past 12 months we’ve seen increased in demand from borrowers who have been turned down by the banks or are increasingly frustrated with the time it takes for the banks to settle. We’ve increased the number of loans we’ve settled by 50% this financial year and expect for this to grow to 100% in the new year. To deal with this growth in demand we are also expanding the team by 50%, taking our numbers up to 15 staff.
This year PMA received the backing of an independent wholesale funder that committed to investing up to $100 million to fund our portfolio of registered first mortgage loans secured by Australian property. This has allowed us to grow the number of loans we are able to service and saw the maximum loan amount increase from $2 million to $10 million on registered first mortgages. It has also allowed PMA to offer more competitive interest rates with our base rate now at 9% per annum for applicable loans.
It’s been a hugely successful year for Private Mortgages Australia and we’re excited about some new changes coming in 2020. Stay tuned!