By Ryan Johnson
As major banks withdraw from home loan lending, a senior lending expert emphasised that opportunities exist in both the mortgage and commercial space for both lenders and brokers who demonstrate value and distinguish themselves from others.
However, as the market expands, Andrew Torrington (pictured above), co-founder and managing director at investment manager and non-bank lender Woodbridge Capital, cautioned brokers to be more discerning.
“Brokers need to be more aware of the different types of lenders, their backgrounds and their track record for executing on deals, and most importantly, not screwing over borrowers,” said Torrington.
The credit crunch faced by banks has been well documented, whether due to factors such as the Term Funding Facility (TFF) being realised, reduced deposits, or various other reasons.
As traditional banks face increased funding costs and changing market conditions, the space is open for non-banks and private lenders to provide solutions to customers who may no longer fit the banks' criteria.
However, in terms of influence, Australia’s non-banking space has a long way to go.
Torrington said the Australian and New Zealand private credit market was worth an estimated $500 billion – with the banks currently occupying 85% market share.
“In America and Europe, this trend has largely played out with the banks’ share of the lending market reduced to 40% to 50%,” Torrington said.
But things are changing.
“Market dynamics and regulatory changes have seen Australian and New Zealand banks materially reduce their exposure to real estate financing, creating an opportunity in the lending market,” Torrington said.
“This opportunity stems from a lack of competition, resulting in increased returns for the provision of first mortgage (senior secured) debt while risk remains manageable due to the strong structural demand for property and moderate loan leverage.”
“It is our view that this trend will continue to play out in Australia and New Zealand, expanding the market for existing and new participants.”
The number of brokers has continued to grow in recent years, with a significant proportion diversifying into commercial lending.
At the same time, there has been a rise in the number of private credit lenders, according to Torrington.
But just in the finance broking industry (and most other industries for that matter), not all private lenders are equal in terms of quality and reliability.
“Brokers should also be more aware of where lenders source their capital from,” said Torrington.
“It’s sometimes easy for lenders to say ‘yeah, yeah, yeah’ but when it’s time to settle the loan it’s ‘nah, nah, nah’ because they don’t have the money to settle.”
“Only dealing with lenders that are fully funded is a key differentiator in this space.”
In the shifting landscape of finance broking, the relationship between lenders and brokers plays a pivotal role in driving successful outcomes for borrowers.
However, according to Torrington, the current landscape often revolves around a transactional approach, where deals are primarily driven by competitive pricing.
“I think the lender-broker relationship is still centred too much around ‘bidding’ for deals,” Torrington said. “
Torrington believes that this approach overlooks the essential elements that truly define a successful partnership.
“My experience has been that deals get done for a multitude of reasons, but mostly it’s about trust, doing what you say, and being easy to deal with,” Torrington said. “While pricing is obviously always in the mix, it’s often in the fine print.”
“Our view is that brokers should differentiate themselves the same as we do - speed, certainty and flexibility. Being different in a crowded market is the key. We naturally levitate to borrowers that keep it simple.”