A successful loan writer has discussed the significant impact on his business of what he sees as a “massive increase” in non-bank funding since the end of 2015.
Dan Holden of HoldenCAPITAL, who this year won the business writers ranking for The Adviser’s sister title SME Adviser, says his brokerage has seen a “massive increase” in non-bank funding of construction loans and a shift in major banks’ lending appetites since November of 2015.
Speaking on the Elite Broker podcast recently, Mr Holden said that his business noticed the change around 18 months ago.
“It was such a massive shift and it was a pretty rough month for us because we had even approved construction loans of $20-$25 million dollars that the bank turned around and said, ‘Sorry, we can't do that anymore.’ It's not very nice when you go to somebody and say, ‘I know you thought you had $25 million, and you've already dug a hole, and there's a big crane on the thing, but the bank doesn't want to do it anymore.’”
“We're seeing the shift in probably two ways. One is that the banks will provide money, but it’s at a drastically reduced LVR, so if you're doing a $20 million project the bank previously would have lent you, say $16 million, 80 per cent of the total development cost. Now they're turning around and saying, ‘We'll lend you 12,’ and that leaves a massive shortage in capital. The second is in pre-sales and just the other terms and conditions that the bank changed pretty drastically,” Mr Holden explained.
Mr Holden added that not only has he seen a reduction in the amount of capital on offer and a tightening of terms and conditions, he has also witnessed some instances where banks “just won’t provide any money”.
“We’ve seen that. Some suburbs have just been blacklisted by all the banks where they just go, ‘No, I won’t touch that suburb even if it's the best deal at a 50 per cent loan to cost ratio with a great guy, I still can't do it.’”
On the other hand, Mr Holden told The Adviser that his business has observed a significant increase in non-bank lending.
“Since November 2015, we've seen a massive increase in non-bank funding. Non-bank funding is really anything outside of the six or seven banks that provide capital to property developers. We have seen a massive influx in non-bank money, and it's interesting,” he said.
The shift impacted how Mr Holden’s brokerage operated.
“It was different… we saw that our effort was to grow the business as a major bank brokerage and be successful by having two-thirds of our volume with the major banks, but then they turned around and not only closed the doors, but drastically reduced their appetite.”