Diversifying into business lending: Are you ready?

Diversifying your mortgage broking businessThe Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is done and dusted, but some of the resulting changes to the finance sector are still to be seen. Potential impacts to commissions and remuneration for mortgage brokers have many considering diversifying to new income streams to ensure their survival.

The other main reason for residential brokers to diversify is to look after the long-term needs of their client base and uncover hidden value based on their needs. Research shows that 25% of mortgage borrowers own small businesses or are self-employed. More and more, consumers are looking for a single source to meet all their finance needs. Brokers who can provide the right product or service for their clients have the potential to build stronger relationships, uncover the hidden value of their database and put them one step ahead of the competition. If you don’t offer business lending to clients who need it, they could go elsewhere and eventually switch their mortgage lending as well.

The recent Reserve Bank’s Advisory Panel has stated that big banks are reluctant to finance newer businesses given the high risks involved. Recent research shows that small and medium size businesses (SMBs) are increasingly turning to alternative lending options because they aren’t having much luck with traditional banks. This presents an opportunity for brokers to provide guidance and value by helping business owners and those managing the finances of SMBs find viable, credible financing alternatives. The market has seen a rise in non-bank lenders providing small and medium business loan options, leaving businesses with a lot more options to navigate, even more decisions to make and in need of serious help.

Diversifying into business financing can be daunting, but understanding the lenders requirements and business documentation requirements is easier than you may think. Most lenders have a simple application process and offer training and support. Private Mortgages Australia hosts regular webinars that explain exactly what is required from a broker and how the process works.

Diversifying into small business lending can help brokers not only grow their business but to service more of their customers’ financial needs and deepen customer relationships. Increasingly, customers are looking for advice across
a broad spectrum of financial products, not just their mortgage.

To be successful, brokers will need to put the customer at the centre of everything, understand the customers’ full needs and to address those needs. This comes down to brokers ensuring they have a range of products on offer to address the holistic financial requirements of their customers.

We believe that diversifying into business lending is the biggest opportunity that brokers will have to grow and develop their business over the next few years.

Private Lending in 2019: The Year in Review

Private Lending in 2019: Year in ReviewAt 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!

 

 

 

Will 2019 be the year of private lending?

Private lending in 2019With the release of Commissioner Hayne’s report  it’s clear that 2019 is going to bring about a number of changes to the private lending industry for lenders, brokers and borrowers alike. We take a look at how we see 2019 panning out for the private lending market.

A move towards transparency

The royal commission has destroyed borrowers’ trust in the big four banks, and now they’re looking for alternatives that offer honesty and transparency. This is an opportunity for those lenders with straight-forward and open lending processes to put their best foot forward and show borrowers that there is a genuine alternative to the mainstream banks.

Continued tightening of the purse strings

2018 saw the banks reducing their risk appetite and placing a number of restrictions on what they will lend and who to. This meant that obtaining finance became increasingly difficult for borrowers, particularly commercial borrowers. This restricted lending environment looks to continue throughout 2019, with the findings of the Hayne report recommending further regulations for the banks’ lending systems.

However, this has created a real opportunity for non-bank lenders who look at lending situations in a different light to the banks. Private lenders are able to be more flexible in who they will lend to. Rather than just look at the serviceability of the loan, they will look at the bigger picture when making a lending decision. This means that while the purse strings are tightening at the banks, more opportunities to access funding will become available through the non-bank sector.

Rise of commercial brokers

Borrowers seeking alternative lenders with transparent and flexible lending processes are going to need help. In these uncertain times, borrowers will increasingly look to brokers for guidance and advice. This is particularly the case for business borrowers who are most likely to be turned away by the banks. For this reason, it makes sense that a number of residential brokers will consider diversifying into the commercial space in order to assist this growing group of borrowers.

The year of private lending?

Overall, the changes in the lending landscape will shine a spotlight on the advantages of working with a private lender. Whether a borrower has become disillusioned with their big four bank or has had their loan application rejected, 2019 will see more and more people looking for an alternative solution for their finance needs. Private lenders have always been able to offer something different to the banks, however this year looks to be the time when the benefits of a non-bank lender really become known throughout the industry.