When compared to the ‘low-doc’ space of the mid-2000s, today’s specialist lenders are unrecognisable. To think of them as one and the same would be a disservice to those in the current market that are leading the industry with innovative products
Today’s specialist lenders are driving innovation in credit solutions to fit all types of borrowers – not just the credit-impaired.
As a result of these new products, the scale of the specialist lending market has increased dramatically. Where once the sector primarily catered to non-conforming borrowers, it now has competitive products in the prime space, as well as tailored solutions for self-employed borrowers, property investors and those looking to consolidate debt.
Brokers will encounter any one of these clients – or perhaps all of them – in any given week.
But where specialist lenders have been quick to innovate, brokers are often reluctant to take them up on their offers. It is safe to say that common myths still prevail. Brokers will say specialist loans are too difficult to write, take too long to assess or are not NCCP-compliant.
In this guide, we dispel these myths and show you real brokers who have found real solutions for real clients through specialist lending.
Scale of the market
According to the Australian Bureau of Statistics, at the end of November 2014, the value of outstanding housing loans financed by authorised deposit-taking institutions (ADIs) was $1.4 trillion.
Pepper Australia estimates the specialist lending market could account for approximately 10-12 per cent of all outstanding home loans. Brokers who play in this space are looking at a market worth an estimated $192 billion. And that’s not even close to what it could be, says Pepper’s director of sales and distribution, Mario Rehayem.
“The market is very much under-served, in the sense there are more borrowers out there that are eligible for specialist loans that don’t know there are alternative products available for them,” Mr Rehayem says.
“Sixty-odd per cent are just sitting there thinking there are no other options,” he says.
The opportunity for brokers and specialist lenders is to educate not only the third-party channel but the general public. The message is plain and simple: there are viable solutions outside those major banks or non-banks that are governed by credit insurers and credit scoring models.
Since its relaunch into the Australian lending market in 2011, Pepper hasn’t taken on any more risk – contrary to popular opinion.
“Yet year on year, we have more than doubled our volume,” Mr Rehayem says.
“The reason for that is more and more brokers are becoming familiar with the opportunities available by utilising a specialist lender,” he says. “But I still believe we haven’t even scratched the surface.
“I would dare to say it is roughly one in 10 brokers who offer a client an alternative option outside of their original offer. It is exceptionally low.”
Unfortunately, the lack of take-up from brokers means many customers are walking away when they could have been offered an alternative solution.
There is effectively a knowledge gap that must be filled with education and understanding of specialist lending, if clients are to receive a holistic service – and help brokers grow their business.
Brokers are Pepper’s largest distributor, but at the same time, the lender understands that it has significant growth opportunity within the third-party channel - and it all comes down to educating and supporting mortgage brokers.
“A lot of brokers have come to us saying that it was a slap in the face when a customer came up to them and said, ‘We have been dealing with you for so many
years. When everything was rosy, you were helping us. The moment we had a bit of an issue, you dropped us like a bad habit, so we found a new broker who has helped us out’,” Mr Rehayem explains.
“For a lot of our brokers, that was the turning point,” he says. “When they have lost referrers.”
A broker’s role should be to identify the best product that is suitable for that client’s needs.
It is not for them to assume whether that client wants an alternative product or not. It is about finding the best product, marrying that up for the client, putting the two together and then offering it.
If the client then refuses to go down that path, a broker has still done his or her job, says Mr Rehayem.
“The worst thing they can do is let the customer out the door knowing there are alternative options, which is why I believe brokers - whether they have been in the industry for a day or 20 years - should all embrace some form of specialist learning or refresher course to better understand how much more they can broaden their customer base,” he says.
“They will be very surprised.”
Clients for life
Smart Lending managing director and top loan writer Melissa Gielnik’s stickiest clients are often high-net worth, selfemployed borrowers that have gone with a
“When they are talking to their friends, they will say that their broker can get them a deal no matter what,” Ms Gielnik says.
“They become stickier because they feel that affiliation with you,” she says.
“I have had clients leave and try to do it themselves, then return and tell me they need my help.”
The self-employed segment is a huge source of business for brokers in the specialist lending space.
Ms Gielnik uses Pepper’s Essentials product, which she says caters to all her selfemployed clients.
“We may have self-employed clients that haven’t done their tax returns in two years, or perhaps their tax returns are not truly representative of what they are earning,” she says. “Those clients fit really well with specialist lenders.
“They do pay a premium for that. The alternative is for them to sort out their tax returns – or pay the higher rate.
“One offsets the other, and it is about how you position the client on that as well.”
Katrina Rowlands, principal of Mortgage Success, says specialist clients come in all forms and can make the best referral sources once you put them with a specialist lender that can give them that second chance.
At any time, a client can go through a dip or fluctuation that is unexpected, Ms Rowlands says. “With my client base, I deal with it once a week, if not more often, where a client hasn’t quite been in the position they envisaged they would be 12 months ago,” she says.
“If they build a level of trust where they can tell you everything and anything with regards to their strategies, wishes, negatives and thoughts – which actually makes future dealings with our clients nicer – it is the strongest referral you can get, because it is so heartfelt.”
Ms Gielnik and Ms Rowlands both use Pepper, a lender that prides itself on having strong business partners with the best loan writers in the country.
Brokers who are writing $50-$100 million a month and considered best in class in the industry will never let go of a client.
“If they can’t help them today – even if that means it doesn’t fit the Pepper policy or that of another specialist lender – they will keep in contact until they find a solution,” Pepper’s Mario Rehayem says.
“Other brokers think they are really good at what they do, but are bleeding more customers out the door purely because they have got the blinkers on and are only chasing one type of client,” he says.
“This is very unfortunate, but they will slowly realise that the client they are chasing will one day become a specialist client.”
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