PMA’s 2017 In Review

What a year it’s been for Private Mortgages Australia! We’ve had some standout moments in 2017 including:Private Mortgages Australia celebrates some stellar moments in 2017

  • Doubling our new loan volume in the 12 months leading up to our third birthday in July
  • Raising our maximum LVR to 80%
  • Taking a stand to put an end to channel conflict.

We’ve also continued to grow our team with new hires, hosted well-attended webinars and increased our Referrer Remuneration and Referrer Rewards. Here’s a bit more information about the highlights of 2017:

Doubling our Loan Book

In 2017 we saw our new loans grow by 115%, doubling our volume.  We’re so impressed that we’ve been able to maintain this growth (in our second year we increased our loan volume by 151%) – we definitely have our database of 3,000 brokers and referrers to thank for this.

We’ve put this success down the ever-increasing number of small-to-medium businesses needing access to commercial funding who can’t get it from the banks. It’s also been great to see so many brokers diversifying into the commercial space to work with these businesses.

We’re expecting a further 50% increase in the number of settled loans in the current financial year and are already well on track to achieve this.

LVR Increase

In the second half of this year we decided to raise our maximum LVR to 80%. The decision comes after we partnered with Property Predictions Pty Ltd, the creator of patented methodologies which measure demand trends and predict expected changes in prices across the Australian property market.

Most private lenders will generally only lend 65% to 70% LVR, and a lot of the time this is based on a forced-sale valuation rather than the true value of the security property. We always take the true value of the security property without any tricks in order to give our borrowers a better solution. The Traffic Light Reports from Property Predictions employ predictive and patented algorithms developed by leading property market analyst, John Lindeman, to provide highly accurate short term rent and price change predictions for houses and units in any suburb in Australia.

Combatting Channel Conflict

A recent survey conducted by The Adviser found that 78 per cent of brokers had lost a client as a result of channel conflict. It appears to be a growing concern with 88 per cent more worried about channel conflict than they were 12 months ago.

We receive over 90 per cent of our business from broker referrals and we want to keep it that way. That’s why we decided to make changes to our referral fee structure to alleviate any concerns from our broker partners about channel conflict.

We’ve now introduced a ‘subsequent referral fee’ which is paid to the referrer should a borrower come back to PMA directly after taking a previous loan with us via a referrer. We get a lot of repeat clients (which is uncommon in private lending) so we believe we’ve got to be doing something right. We want to reward referrers for providing us with a good lead and will continue to do so no matter how many times that client comes back to us directly. It’s basically free money for our referrers but we believe they deserve it. All referrer fees are paid within 24 hours of settlement with no clawbacks.

Finally, we’d like to take this opportunity to wish all of our supporters a very merry Christmas! It’s an extremely busy time for us and we’ll be working right up until Christmas Day in order to help any borrowers who need finance before the end of the year. If you have any commercial finance needs please get in touch.

MERRY CHRISTMAS!

10 Questions For Your Private Mortgage Lender

Private Mortgages Australia gives advice on what to ask your private mortgage lender.The strict lending requirements imposed by traditional bank lenders can mean that many borrowers have trouble qualifying for a conventional mortgage. However, a private mortgage provides a smart alternative for a business borrower who can’t get finance from a bank.

Private mortgage finance usually comes from private investors or institutional funders who are willing to loan borrowers money for a business purpose using a property as security. The process can be quite complicated but choosing the right lender and knowing the right questions to ask can make a private mortgage a great option. These are some of the questions to ask your private mortgage lender.

1. What types of products do you offer?

Private mortgage lenders may offer a range of mortgages, such as caveat loans, car finance, invoice factoring, first-ranking mortgages or second-ranking mortgages. If you are looking for a specific type of loan product, check with the lender about the types of products they offer so that you can find the right type of business loan that meets your needs.

2. How quickly can you assess my application?

Private lenders are usually able to process applications much more quickly than traditional bank lenders. Generally, as long as the borrower has sufficient equity in the underlying security, a private lender may be able to approve a loan much more quickly than a traditional lender, sometimes offering pre-loan approval within a few hours.  However, be wary of lenders who advertise 24-hour loans as this is often a trap to get unsuspecting borrowers committed. These 24 hour loans are commonly also called “Caveat Loans”. Many say they ‘can’ offer loans within 24 hours, but with the amount of work that goes into a loan offer it is very unlikely that this will actually happen. Some exceptions do exist, for instance where a valuation has already been conducted by a reputable valuation firm thus reducing the need to order a new valuation and speeding up the application.

3. What interest will I pay on my mortgage?

The interest rate will vary depending on the type of loan taken out and the length of time taken to pay it back. Some lenders may advertise rates from as little as 1% per month, however borrowers should be wary of ‘from’ rates, especially when included in the indicative letter of offer, as quite often the interest rate is much higher when the actual loan offer comes back.

4. Where does the money come from?

This is a very interesting concept that very few people consider, where does a private lender actually get their money from? A lot of private lenders use a sophisticated investor networks to underwrite their loan advances. Other private lenders raise funds from wholesale or retail sources with the use of an Australian Financial Services License (‘AFSL’).

5. Who makes the lending decision?

In some cases it is the individual investor that makes the final decision to lend the funds required and will essentially “write the cheque”. This isn’t an ideal situation. Imagine that you are a borrower and you submit a loan to a private lender. Everything seems to be going well, you pay the upfront fees, order the loan documents from the solicitor, but then are taken by complete surprise when your loan application is rejected despite being formally approved. What has occurred is that the loan was approved by the ‘middle man’ but then turned down by the person writing the cheque. Unfortunately this occurs all the time.

The smarter alternative is to make sure that the private lender is the one who is making the decisions. This is a safer and more effective situation for the borrower.

6. Are there any hidden costs?

Sometimes there are additional fees that you may not be aware of upfront. Check with the private lender about any additional costs that may be conditional upon specific conditions or circumstances. Make sure you work with a well-respected lender that has a transparent lending process so you don’t get hit with any unexpected fees.

7. What are the optional features?

If you are looking for specific features, ask the lender about whether these will be offered with the mortgage. Popular features that provide convenience for borrowers include prepaid loan terms. A pre-paid loan term is where a borrower doesn’t need to service the loan payments for a specified period of time. Some lenders only offer this feature for one month. Could you imagine the strain of having to service a private loan with a higher than bank interest rates every month? This would be very difficult especially if the reason for approaching the private lender in the first place was to assist with cash-flow issues. It is very important to work with a private lender that understands this and can offer a loan term that is capitalised with reliance on an exit strategy.

8. How much can I borrow?

Generally, private mortgages can be approved for any amount range from $20,000 to $4,000,000 or more, and up to 75% of the value of the underlying security. However, a good lender will treat every loan application as a unique case and can therefore lend based on the individual circumstances.

9. Do I need security for a loan?

In most cases the lender will require real estate as security. You should have some equity built up in the property to be able to borrow against it.

10. Can I make extra repayments?

If you would like the option to make extra repayments, ask the private lender about the possibility of making extra repayments and whether a fee will be charged if you do choose to make them.

 

By Tony Barbone

Managing Director, Private Mortgages Australia