Finding the right product

With specialist lending, however, how well this is achieved will become a key factor in determining whether the borrower can be a candidate for a prime loan later on.

“The same fundamental rules apply that are in place for prime clients,” says Pepper’s director of sales and distribution, Mario Rehayem. “The broker must identify a benefit to the client, evidence their capacity to repay and deem the loan is ‘not unsuitable’.”

Fundsnational’s Giulio Avian agrees and says brokersneed to feel confident in their recommendations.

“Aside from the lending criteria and whether it’s going to meet a particular lender’s guidelines, you need to feel comfortable in yourself that the client has the capacity and the intent to get through this,” he says.

Mr Avian adds that patience is crucial with specialist lending, and rushing into a loan can harm both broker and borrower.

Product diversity

Specialist borrowers, notes Mr Rehayem, have the same needs as any other borrowers and could potentially require future investment loans, insurance or auto and equipment finance.

Lenders and brokers alike should not pin their ‘success’ with the client on any one product.

“Pepper’s success is not hinged on any one product,” he says. “What makes us successful in the specialist lending space is our service, simplicity, transparency and dedication.

“Our product suite has been developed based on 12 years of specialist lending experience and direct feedback from our customers and broker partners.”

Fox Symes Financial’s manager of mortgages, Nino Eid, adds that specialist borrowers can require a range of products.

“Specialist borrowers may benefit from insurance products, financial planning advice and assistance with household budgets,” he says.

Education

According to Mr Eid, some brokers’ hesitancy to write specialist lending products stems from a lack of knowledge of the products on offer.

“Brokers need further education and exposure to the benefits of these types of offerings,” he says. “The best approach is for brokers to become familiar with the different products available and form strong relationships with their BDMs, particular scenarios.”

Brokers must spend time getting to understand the client’s unique situation and requirements to be able to match them with a suitable loan.

From there, brokers need to focus on the solution and the benefits the product will offer the client, he says.

Home Loan Experts’ director, Otto Dargan, believes Pepper is a great lender to work with if a broker wants to understand the specialist market. This, he says, is due to Pepper’s simple products and approachable staff.

When looking at products for a specialist borrower, there should be an overarching idea in mind, he says. “The long-term plan should be to get them back into a prime loan, so the broker and borrower should plan for this together.”

SNAPSHOT: PEPPER FLEXI ADVANTAGE LOAN

Pepper's Flexi Advantage loan is designed for customers who are unable to meet the lending criteria of banks and mortgage insurers.

The home loan aims to make it easier for borrowers to purchase or refinance their home or investment property, consolidate their debts, or raise working capital for business purposes.

Flexi Advantage can also offer solutions to customers who have had minor credit problems or who lack the minimum five per cent genuine savings required by banks and mortgage insurers.

Key features:

• No lender’s mortgage insurance (LMI) required
• Adverse credit registered over the 12 months prior to application is considered No limit on the number of debts that can be consolidated
• Available for refinance (including non-conforming, private and solicitor loans)
• One month’s current mortgage arrears (provided no missed payments in the last three months) is considered
• Maximum loan amount now up to $2,500,000

Maximum loan amount:

Standard loans:  $1.5m (up to 70% LVR), $1.0m (up to 80% LVR), $750,000 (up to 90% LVR)

Jumbo loans: $2.5m (up to 65% LVR), $2.0m (up to 70% LVR), $1.75m (up to 75% LVR), $1.25m (up to 80% LVR)

Maximum loan-to-value ratio (LVR): Standard and Jumbo loans: 90 per cent for purchases only, 85 per cent for all other loans

Loan term: 10 - 40 years

Credit history: Any number of defaults or judgements registered one year prior to application, paid or unpaid, and one month's current mortgage arrears providing no missed payment in the last three months

Loan purpose: Purchases or re-finance of owner-occupied and investment properties, working capital for business purposes and debt consolidation

Income documentation (PAYG): Last two pay slips plus either a letter of employment or latest group certificate

Income documentation (self-employed): Last two years' tax returns plus last two years' tax assessment notices

Acceptable securities: Residential securities in major cities and towns up to a maximum land size of 25 acres (10 hectares)

Redraw: Minimum $1,000