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With mortgage stress and non-vanilla deals on the rise, now is the time for brokers to boost their knowledge on specialist lending.
According to research from Digital Finance Analytics (DFA)*, more than 22 per cent of borrowing households in Australia – around 1 in 5 – are currently experiencing some form of mortgage stress.
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Mortgage stress is defined as either being mild or severe. Mild stress can be when you are struggling financially but are still maintaining your home loan repayments by eating into your savings, reprioritising expenditure and borrowing more on credit. Severe stress is getting behind on repayments, trying to sell or being foreclosed.
Sydney leads the way for severe stress at 6.2 per cent of mortgaged households. Melbourne sits at 3.3 per cent, while the national average is 2.8 per cent, according to DFA. This is a result of large mortgages driven by high housing prices in these areas, combined with cost of living pressures and flat income growth.
What this means for brokers
Given that this is the current situation, as interest rates rise and circumstances change, more and more borrowers will turn to brokers and bankers for help. So, to be able to assist, they are going to need someone with specialist lending expertise.
Unfortunately, many brokers turn away these type of leads – either because they don’t have the required knowledge, or because they feel they are harder to convert and the extra work required doesn’t make it worth their while.
So brokers are missing out on business.
How to boost your knowledge
Upskilling in specialist lending usually comes from two sources – aggregators or a BDM from a specialist lender. Both come with potential downsides: the aggregator has knowledge of all their lenders' products so won’t just be focused on specialist lending, while the BDM will only discuss their specific products.
Specialist lending is also not just about product knowledge. The way you deal with specialist borrowers may be quite different to your approach with prime vanilla borrowers. So how can you increase your specialist lending product knowledge as well as learn how to modify your approach?
The solution
Learning from another broker can be one of the quickest ways of getting up the curve. Look for someone who has done a lot of specialist loans and deals with specialist borrowers on a regular, if not daily basis. They will be best placed to teach you about policy niches for the full range of specialist lenders available to you.
If you’re a traditional broker, here are some of the things you could learn from broker who is skilled at specialist lending:
- How specialist deals can be profitable
- How to modify your approach
- How to get the full story from the borrower so you can find a solution
- What lenders go to for what deals
- How to pitch deals to lenders
- How to submit deals you know will be approved
- Extra NCCP and compliance requirements to follow
7 reasons you should care
Sure, it will take time to become as comfortable with specialist loans as you are with vanilla deals, but mastering this new skill will bring significant benefits. Here are seven things diversifying into specialist lending can lead to:
- Converting more leads
- Tapping into a growing market
- Diversifying your income
- Becoming known as a ‘problem solver’ rather than a ‘rate calculator’
- Differentiating yourself from other brokers
- Building deeper relationships with borrowers
- Expanding your options with additional lenders
When I look back at the loans I have written, from my experience it has been the difficult specialist loans that have brought me the most personal satisfaction. I also see them as having the potential to add tremendous benefits to your business.
* http://www.digitalfinanceanalytics.com/blog/mortgage-stress-and-probability-of-default-is-rising/
Peter Ellis is an experienced specialist lending broker. He founded Lending Mate™ as the borrowers’ advocate to specifically focus on educating and helping borrowers who are struggling with finance. Peter also helps brokers diversify by building their specialist lending business and showing them how to help specialist borrowers and save deals from being declined.
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