Specialist lending: in the know

Some borrowers have a history of credit impairment; others are self-employed; and for some, the challenge can be as simple as not having held their current job for long enough.

A vast majority of specialist borrowers are more than capable of servicing a loan but, for one reason or another, they don’t comply with prime lenders’ credit policies.

The diversity of specialist borrowers means there is no one-size-  fits-all product and most specialist lenders offer a variety of products to best suit individual circumstances.

Brokers need to be aware of these different products to best serve the needs of their clients.  Those who don’t have a sound knowledge of which specialist products are available risk putting clients off.

According to Mario Rehayem, director of sales and distribution at Pepper, if a broker doesn’t understand the range of specialist products, borrowers will go to one who does.

“Clients come in with diverse needs and each broker should be in a position where they know in some depth – once they have carried out the fact find or preliminary assessment – [about] a broad spectrum of products from various lenders,” he says.

This will allow the broker to recommend theproducts that best suitthe client’s needs, he adds.

Understanding the best products

Having surveyed the industry, including via focus groups, Mr Rehayem concludes that the complexity of specialist products is often what hinders brokers in writing specialist loans.

In response, Pepper has worked hard to develop the most simple and transparent products in the market, he says.

“We have made sure to strip out all the complexity and we have gone for a rule whereby if you know the LVR, you know the rate,” Mr Rehayem says.

“By doing that, it allows the broker to sit down in front of their client and confidently give them exactly what the repayment is, what the rate is and what the fees are – all up front, without hesitation or fearing the product is going to come back at a different rate.”

Specialist lending products have evolved in recent years as tighter credit policies place more and more borrowers in the specialist bracket. As many as 67 per cent of Pepper’s specialist borrowers have no credit impairment whatsoever, according to Mr Rehayem.

With more potential borrowers now forced to seek specialist loans, lenders have had to adapt their offerings – “innovation is crucial”, says Mr Rehayem.

“We make sure that we constantly push ourselves for different ways to introduce products that better assist the broker to meet the client’s needs,” he says.

Of course, for most borrowers, the specialist market is just a stepping stone while they prove themselves a good credit risk before moving on to a prime loan with a better rate.

Brokers need to recognise where in this evolution their clients are at and to ensure their current product is right for them.

Many specialist lenders – including Pepper – offer a ‘near-prime’ loan as a transitional product for clients who don’t quite yet meet the criteria for a prime loan.

Pepper, notes Mr Rehayem, has also recently launched a prime product, allowing for a seamless transition from specialist to prime borrower.

SNAPSHOT: FLEXI ADVANTAGE PLUS (FULL-DOC)

Key features:

• Unlimited number of defaults, judgements or writs registered more than 12 months prior to application accepted (paid or unpaid).
• Up to 2 defaults registered more than 12 months prior to application accepted (paid or unpaid).
• Two months’ current mortgage arrears accepted.

Maximum loan amount:

• $1,000,000 (up to 70% LVR)
• $750,000 (up to 80% LVR)

Maximum LVR:

80%

Credit history:

Any number of defaults or judgements registered more than 12 months prior to application, paid or unpaid. Up to 2 defaults registered less than 12 months prior to application and 2 months’ current mortgage arrears allowed.

Income documentation PAYG:

Last 2 pay slips plus either a letter of employment, latest group certificate, tax assessment notice or 3 months’ bank statements.

Income documentation (self-employed):

Last 2 years’ tax returns plus last 2 years’ tax assessment notices.

Acceptable securities:

Residential securities in major cities and towns (categories 1 and 2) up to a maximum land size of 25 acres (10 hectares).

SNAPSHOT: SELF-EMPLOYED ADVANTAGE PLUS (ALT-DOC)

Key features:

• Available for refinance (including refinance of non-conforming, private and solicitor loans).
• Unlimited number of defaults, judgements or writs registered more than 24 months prior to application accepted (paid or unpaid).
• Two months’ current mortgage arrears accepted.

Maximum loan amount:

• $1,000,000 (up to 70% LVR)
• $750,000 (up to 75% LVR)

Maximum LVR:

75%

Credit history:

Any number of defaults or judgments registered 24 months prior to application, paid or unpaid. Up to 2 defaults registered 12 months prior to application and 2 months’ current mortgage arrears allowed.

Income documentation:

• ABN-registered for 12 months.
• GST-registered for 6 months.
• Declaration of financial position.
• Minimum of 6 months’ business bank statements.

Acceptable securities:

Residential securities in major cities and towns (categories 1 and 2) up to a maximum land size of 25 acres (10 hectares).

SNAPSHOT: PEPPER EASY (FULL-DOC, ALT-DOC)

Key features:

• Unlimited defaults, judgements or writs when registered more than 36 months prior to application (paid or unpaid).
• Defaults under $1,000 ignored.

Full-doc

Maximum loan amount:

• $1,250,000 (up to 80% LVR)
• $750,000 (up to 90% LVR)

Maximum LVR:

• 90% for purchases only.
• 85% for all other loans.

Credit history:

Any number of defaults, judgments or writs registered more than 36 months prior to application, paid or unpaid.

Income documentation (PAYG):

Last 2 pay slips plus either a letter of employment, latest group certificate, tax assessment notice or 3 months’ bank statements.

Income documentation (self-employed):

Last 2 years’ tax returns plus last 2 years’ tax assessment notices.

Alt-doc

Maximum loan amount:

• $1,250,000 (up to 80% LVR)
• $650,000 (up to 85% LVR)

Maximum LVR:

• 85% for purchases only.
• 80% for all other loans.

Credit history:

Any number of defaults, judgments or writs registered more than 36 months prior to application, paid or unpaid. 

Income documentation: