Lending changes by Australia’s major banks could soon result in a surge of property purchases by small and medium-sized enterprise (SME) owners.
Westpac this week announced they would increase their loan to value ratio (LVR) from 80% to 90% of a property’s value self-employed borrowers after the Commonwealth Bank announced similar changes earlier this year.
The last 12 months have also seen Westpac, CBA and St. George announce they would only require one year of financial records as income verification for self-employed borrowers. Previously they had required two years of financial records and tax returns.
Joel Wyld, director of mortgage broker Peasy, said the lending changes indicate lenders’ perceptions of SME borrowers are evolving.
“In the past banks have viewed the SME demographic as risky despite many owners coming from strong corporate or trades backgrounds with a long successful working history in addition to strong equity in various investment classes,” Wyld said.
“In the past, many SME owners have had to settle for low doc loans for a two year period which has deterred them from purchasing property,” he said.
While some of the lending changes have been in force for some time, Wyld said a large number of SME owners are unaware of the more lenient lending criteria and with more than two million SME owners across Australia it could provide brokers with an excellent opportunity to extend their client base.
“The time is now ripe for SME owners to capitalise on the new lending rules to secure either a dream home or business premises,” he said.
“The number one piece of advice given to SME owners when applying for a property loan is to ensure financials are up-to-date. Inaccuracies in financial records and book keeping will delay the settlement process and could ultimately determine if the loan application is accepted or declined.”
Wyld said there has also been a growing trend towards establishing property trusts and partnerships using property as vehicle for SME owners, though he said while those structures have a place in the market, brokers need to be careful when assessing income of a business if multiple owners are involved and should recommend those involved seek legal advice.