The N1 Holdings CEO recalls how a specialist solution saved a deal
Over the course of this year, lending standards have changed dramatically, and many borrowers have found themselves locked out of a market they previously would have had no trouble accessing. Adding to the problems this has caused, more and more people have blemished credit histories and, while this has given rise to a surge in non-bank lending, it takes a broker to navigate the often-complicated and unfamiliar non-bank sector.
I was approached by a Sydney-based couple who wanted to move into a larger home. However, due to their credit histories they required a specialist product to fund their purchase – they just didn’t know it yet.
The wife saw their dream home at auction and paid the 10% deposit needed to secure the property, but they had not acquired pre-approval. Obviously this jeopardised their entire plan, but it was only the start of the problems.
It soon transpired that the husband had a credit card default of more than $7,000 and they needed to borrow 90% of the property’s value, taking them into LMI territory. As the saying goes, life is full of surprises. As brokers, our clients often turn to us to mitigate some of life’s unforeseen developments, and this was a classic case.
At our first meeting, I sat down with both the husband and wife to go through their credit histories and current financial position. This helped me to understand exactly how much they needed to borrow but, more importantly, how they planned to pay it back.
As part of the due diligence in this process I also enquired about their ultimate financial goals, and this presented another opportunity for me to help them avoid any further surprises.
The priority was to ensure serviceability, which meant that we had to reduce the cost of repayments, as well as associated fees, as much as possible.
Over the course of our meetings and the necessary background checks, I discovered that the credit card default had occurred more than two years ago. This opened up some additional possibilities and helped us leverage their credit status to qualify for a less expensive loan.
We suggested a specialist product at 85% LVR, rather than 90%, and straight off this gave them lower-risk fees and interest rates. Throughout this process it was important for me to explain what their options were, as well as how they would impact future financial decisions; after all, nobody wants to be overstretched with debt.
There was a huge educational curve for the clients in this deal, which placed pressure on us in two ways: first of all it meant we had to take additional time to investigate the options available within their current circumstances, and second, but more importantly, we had to manage expectations by ensuring we could secure the finance needed.
Ultimately the clients were very happy with the outcome – they got the mortgage and the property, while also addressing their future goals and restructuring their finances in a way that would support achieving them.
It was also a win for brokers as it demonstrated the value we bring, especially for clients who require the services of a non-major, or even non-bank, lender. The clients were aware that the product they needed wasn’t typically available at any of the major banks, but the specialist, professional knowledge needed to find the right loan could only come from an impartial professional, ie a broker.
As the mortgage lending landscape continues to change in response to regulatory outcomes and factors beyond our control, deals like this really demonstrate the value brokers bring, not only to their clients but to competition across the industry.
Without the expertise of a professional, this couple would not have been able to buy this property, or set themselves on the right track to secure their future financial goals.
Meeting – and using – a broker has its value. My conclusion is that, as brokers, we need to know what’s available in the market, including alternative and specialist lending products that aren’t commonly available to clients who only talk to major banks.
Ren Hor Wong
Executive chairman and CEO