Following on from my recent CCCFA blog post which you can read here, it felt like a good time to talk about some of the options we have on hand when you might find yourself just outside of the main banks lending criteria. This may sound like one of those “but that’ll never happen to me, I’m really good with my money” type scenarios but, with things the way they are in the lending space at present, you’d be surprised at how many people could soon find themselves in that exact position. You can ask anyone who has a job where they deal with lending money, at a bank, a mortgage advisor like me or somebody who works in vehicle finance etc and they will no doubt tell you about how “deals we would’ve got done 6 months ago no problem are now not working”. They aren’t exaggerating either, it’s HARD work out there getting a deal across the line with lenders.
But that’s where these guys come in, commonly referred to as second tier lenders or non-bank lenders, they are smaller, tighter knit teams of people who are able to look at each potential lend on a case by case basis without the old “we’ve put your info into our computer and the computer says no sorry” type approval process. Now I’ll admit, before moving into this role I didn’t know a lot about second tier lenders but after working with them I can definitely see there’s a market for them and it’s growing by the day with all of the difficulty people are experiencing getting approvals.
A perfect example of this would be what is becoming such a common scenario lately, lets say we have some clients who, through a main bank lender we can get them an approval for a $600,000 purchase price. You’d think that was pretty good really, yay! an approval to buy a home! Until you look at what and where you can buy a house for $600,000 looks like. Now these same clients, through a second tier lender, might be able to gain an approval for a purchase price of lets say $750,000 at a slightly higher interest rate, maybe 4.2% vs the 3.65% they might get at a main bank. Now it’s easy to look at those numbers and go “that’s a bit of a jump” but when you consider that you’re now able to buy a better house, in a better area meaning potentially better capital gains and you work out the actual, real world difference in cost vs how your financial situation could improve, things start to make a bit more sense. There could also be a lot of people out there that might give up the hunt after looking at what they can get for that $600,000 purchase price and going to a second tier lending might see them getting into a home of their own and off the renting merry go round with it not actually costing much or any more than what they’re currently paying in rent. I mean if it means owning your own home and it costing as little more each week as the Saturday night takeaway dinner for the family, then things start to add up.
This is a scenario which we have worked through for some of our clients before, the clients sit with the second tier lender for a year or two and then we look to move them over to a main bank to get them onto a better interest rate. Often, because of the advice we give, they’ve also had the time to get into a better financial position and the short term loss from paying a higher rate with a second tier lender has seen them gain significant ground for their long term financial wellbeing.
Not everyone is going to agree that this is the best path forward and it does all come down to your own personal situation and goals. A more conservative borrower might look at using what the main bank will approve and purchase a property and be happy with that, others might look at the second tier lender scenario and say “well, that would suit our future plans better”. Everyones wants, needs, goals and financial situation are as individual as they are and the message that I am trying to get across here is to look at ALL of the options you can get an approval for and get some solid financial advise to make sure the path you choose is going to be the best for you. You could be surprised at the difference in lending and conditions to meet between your different approvals. Get in touch with an advisor, get some personalised financial advice and see what YOUR options are.