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Vendor financiers to join broker association

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Australian Broker | 30 May 2014, 08:13 AM Agree 0
A professional association is targeting vendor financiers across the country to bring them into the finance broker fold, but its CEO said that won't affect the focus on its current membership
  • Haydn Cooper | 30 May 2014, 09:28 AM Agree 0
    Hmm.... vendor financiers who "current ACL holders, who usually run finance brokerage businesses and hold real estate licences". Conflicts of interest already evident?
  • Papery | 30 May 2014, 10:17 AM Agree 0
    I agree....perhaps too slippery a slope....better make sure the compliance is water tight...
  • Amused | 30 May 2014, 02:43 PM Agree 0
    I guess FBAA needs to do something for new members, specially if aggregators keep stating 'MFAA' as a pre-requisite :)

    These guys focus on client who are 'not able to source traditional lending', and, undoubtedly are charging a hefty premium above market interest rates. That sounds like the definition of Responsible Lending, I can't understand why they are having troubles with PI Cover
  • Paul Dobson | 30 May 2014, 03:58 PM Agree 0
    Hi Amused. Just like some second and most third tier lenders cater to clients who are 'not able to source traditional lending', so do vendor financiers. You may also be surprised to know that the average vendor finance Instalment (Terms) Contract is approx 2% above the big four's standard variable.

    Like traditional lenders, we too have to comply with ASIC's Responsible Lending requirements and, to date, ASIC have carried out quite a number of NCCP audits of vendor finance businesses, without the dire consequences you may expect.

    You may remember that it took quite some time for the insurance industry to catch up with the changes caused by the introduction of the AFSL, i.e. it took quite some time for suitable AFSL PI insurance to become available. This has been the case for vendor financiers since the introduction of the ACL.

    In the near future, with the help of the FBAA, we're hopeful we will be able to disclose our business as a Vendor Finance Broker on a standard brokerage PI policy.

    But it's not just the FBAA and the insurance industry that are recognising us. Organisations like COSL understand our Industry and, on their application form, you'll notice they've divided us into Vendor Finance Providers and Vendor Finance Brokers.

    I hope this information is helpful in furthering understanding of our Industry.

    Cheers, Paul
  • David Siacci | 30 May 2014, 04:48 PM Agree 0
    In response to Amused, most Vendor Financiers are sitting at around the 6% to 7% for loans up to 100% of the LVR of the home and with no mortgage insurance to be paid. Hefty is a matter of opinion I suppose...
    Try to get a 100% mortgage with no extra security from a bank or other "mainstream" lender with those conditions.

    As far as PI is concerned the VFA spent a lot of time talking to different providers. Despite trying many companies here and abroad we were unable to source a product for VF. I believe this is mostly due to ignorance and entrenched ideas as to what VF is.

    Dave Siacci
    President of Vendor Finance Association of Australia
  • champion | 30 May 2014, 10:24 PM Agree 0
    No conflict just a greater understanding of how to best transact for clients
  • David Siacci | 31 May 2014, 02:38 PM Agree 0
    In answer to Amused. Define 'Hefty'. Buyers with vendor finance are generally offered rates 1% to 2% above the rates offered by the big 4 banks. Now I doubt you will find a product out there that will lend up to 100% of the LVR, with no mortgage insurance at such a competitive rate.

    David Siacci
    President VFA
  • Amused | 03 Jun 2014, 03:17 PM Agree 0
    Paul: You ask how 2% above big four SVR is not hefty?
    The average SVR of the big four is 5.91%, so your rate is 7.91%. Customers who qualify for normal lending can get 1% below this rate and pay 4.91%, so on a loan of $300,000 you charge $23,730 per annum in interest while the bank will charge $14,730 for a loan of the same size. That's 61% more interest, or an extra $173.08 per week.. yes that is a hefty fee :)

    David: 100% LVR with no LMI, are you sure that's how VF works? My client looked at buying a property worth $300,000 through a VF provider, and they wanted to charge them $330,000 with settlement in 12 months, naturally they assured them that the property would go up 10% over the next year. On top of that the agreement required them to move into the property right away and pay above market rent.

    I'm sure you have some explanation for all that, but the VF deal involved borrowing $330,000 today, for a property worth $300,000 today, and paying an interest rate of 7.91%, then total interest for the year would be $26,103.

    Using normal bank products, and paying LMI, the same client was able to borrow 100%, Yes the total lending was $308,000 because of LMI, but that's $22,000 less than VF,and after borrowing additional funds at unsecured rates, the effective interest on all lending was 5.29%, giving annual interest of $16,293

    So you are telling me that borrowing 110% of today's value at 7.91%, is better than borrowing 100% at 5.29%? Using normal bank loans is $9,809 cheaper per year. So while you don't charge LMI, VF is still 60% more expensive.

    As members of the VF sales force, you obviously have a different point of view, but you are dealing with customers who can't qualify for normal lending, and charging them 60% more than the bank would charge.
  • David Siacci | 04 Jun 2014, 01:26 PM Agree 0
    Hi Amused,
    So from what your saying, you have seen 1 deal come to you and you assume that the whole industry is the same?

    Good bit of clear thinking there. Just because 1 plumber ripped me off on a hot water service last year means that they are all rip off artists?

    Buyers need to do thier homework to see if the person they are buying from is offering them a fair deal or not ( 1 year time frames are not the norm and I would not do one less that 5 with an extention period of 2)

    So before you throw the the washing out with the water, may be a bit of homework from industry paaarticipants would be beneficial.
  • Amused | 04 Jun 2014, 05:29 PM Agree 0
    David,

    You yourself acknowledge that you are charging 2% above the SVR, now upon seeing the numbers, you also acknowledge that it is a rip off :)

    During this process, I happened to meet with the people trying to sell the VF deal... it was not one rogue guy, there were two of them. One was a trainee, who had just finished a seminar on how to do this stuff, the other, was his mentor, who alleged to have been in the industry for years.

    I asked how they could justify these terms, and they were kind enough to tell me it was perfectly normal and even offered me free tickets to an introductory seminar, so I could see how it all worked.

    Out of interest, I attended the seminar. I was told that if I paid $10,000 for the full course, I could learn all the 'secrets' of how to make money in property, one of them being how to sell properties I don't even own. I particularly liked the part about mortgages, it was full of inaccuracies, misconceptions and blatant lies.

    this unscrupulous behaviour, is not the outlier you'd like to pretend it is. It's being perpetuated through talk shows disguised as education, and being replicated, through this mentor process, which involves passing fees up the chain and resembles network marketing

    As you noted, you are unable to obtain PI cover, which you blame on 'ignorance and entrenched ideas'. Isn't it time to face certain realities? You are not a profession, so can not get professional indemnity. Paying someone $10,000 to tell me 'secrets' does not amount to a qualification.
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