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Consider this scenario: as a mortgage broker, you are reviewing an application, it feels like a deal and it all looks good until you notice repayments to a small-amount non-bank lender on your client’s bank statements. Do you continue to work on the deal?
As this market emerges and becomes more mainstream with an estimated 750,000 consumers each year, this is a situation that brokers may find themselves in more and more. As a credit provider in this market (also referred to as the micro-lending industry) for more than 10 years, I have seen it evolve from a cottage industry to one that is licenced, sophisticated, regulated and continues to meet the genuine finance needs of a growing and diverse slice of society. To give weight to this, in 2014 alone, this small-amount lending industry was responsible for providing funding of over $1 billion in Australia – arguably cementing its worthiness whilst eagerly awaiting the nod of acceptance to enter the mainstream lending arena.
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If the authenticity and reputation of the small-amount non-bank lending industry is no longer on the table – as these entities now hold the same credit license as a bank – could the answer “no” be the result of a mortgage broker’s own perception that loans provided by small-amount lenders are a red flag to indicate cash flow issues or risks, rendering their client incapable of a mainstream lender’s consideration? (Note: a small amount credit contract (SACC) is an unsecured personal loan up to $2,000 for a term up to one year).
Firstly, it goes without question that each and every mortgage broker may have a particular segment they wish to focus on (and equally have specific client profiles they prefer not to service), but let’s not lose focus of one of the primary responsibilities of a mortgage broker. Mortgage brokers are professional and highly regulated credit advisers who primarily ensure their client’s capacity to service. As long as their client can adequately afford their current and proposed debts, regardless of their origination, it would be an injustice to their client (and to themselves) not to submit a home loan application purely on the basis of there being SACCs listed on their client’s bank statements. Of course there are numerous other factors a mortgage broker must consider before submission – mortgage insurance requirements to name just one – which gives further credibility to the mortgage broker’s immeasurable value. Based on this and the integrity of the mortgage broking industry, it seems highly unlikely a mortgage broker would pre-emptively assess their client’s deal to be unworthy of submission purely on the SACC’s presence and thus preventing their client’s desired access to a home loan.
The exploration continues then. If we are no longer questioning the reputations of the small-amount lending industry, nor the mortgage brokers, the spotlight now focuses directly towards the mainstream lenders. Could it be that they are the villain in this proposed situation? Could it be they have a clear lack of appetite for applicants whose Veda file or bank statements show SACCs or small-amount lenders, so via their BDMs and lending guidelines they ensure mortgage brokers are clear on this non-negotiable policy? First, it’s essential to acknowledge how established, regulated, globally recognised and admired our Australian banking sector is. Yes, they have their set policies which do not favour numerous and recent credit enquiries, nor evident bank account mismanagement, but these lenders do maintain a willingness to consider applications. As long as any further assessment queries are explained clearly and satisfactorily, limited flexibility does exist in this very successful institution. Understandably, on the flip side, if an application simply does not ‘add up’ to the lender or concerns are not adequately mitigated, a decline is justifiably issued. So, do the mainstream lenders have a policy that directly states “do not approve any application where small-amount loans have been entered in to”? Our research says the answer is “no”.
Herein also emphasises an intrinsically important role of the mortgage broker; to not only fully understand their client’s situation and circumstances, but, where necessary, explain definitively to the proposed lender the genuine purpose and solution that the small-amount lending product has provided to their client. By doing so, mortgage brokers have the opportunity to solidify the importance and societal need of SACC loans provided by small-amount lenders.
As this industry continues to grow, overlapping with the traditional mainstream space, it is increasingly important for brokers and banks to understand the role that small-amount lenders play in the Australian consumer credit market so they can ensure that the hypothetical scenario is correctly resolved based on a range of circumstances – not just the presence of a small-amount non-bank lender‘s SACC loan.
