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We’ve recently noticed an interesting shift in the short-term lending space – there’s a distinct increase in demand for first mortgages. So much so that recent analysis of our portfolio demonstrates that first mortgages are up a massive 348 per cent compared to November 2014.
If we take a step back, lending money should not be a complex task. For the majority of transactions, the fundamentals will apply. Dress them up as you will, but these fundamentals have been in existence for hundreds of years: asset value, gearing, serviceability/ exit strategy and borrower scrutiny. But somewhere along the line we have lost the simplicity. A short-term loan, including a first mortgage, is in the same gene pool as a mortgage, and the basics apply. This fluid, real-time style of finance provides a useful alternative and necessary breathing space.
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A commonly held expectation is that first mortgages are in traditional lenders’ territory, so the increase in our rate of first mortgages may seem odd at first glance – particularly as our dominant products (what we’re best recognised for) are our caveat/ second mortgages from around $50,000 to $500,000.
However, a loan is a loan. A client’s circumstance is the variable and time is a valuable currency.
We certainly don’t and cannot compete with banks at delivery rates of four per cent to six per cent per annum. We don’t have the volumes, and no matter which way you slice and dice it, a three- to six-month loan term at six per cent per annum isn’t going to make anybody any money any time soon. With cheaper rates, I accept to an extent that a bank can afford to take six to eight weeks to settle a loan and torment the borrower along the way. What we do provide is an ability to settle a transaction quickly through the application of a common-sense approach to risk and having the autonomy to make and implement decisions. For the broker, this translates to quick processing and commissions on sound short-term opportunities.
Sure, the market is hot right now and everybody with a million bucks in the back of their jeans seems to be developer or a speculator. While this trend continues to play itself out, clients will be presented with opportunities that require timely completion. As we all know, opportunities are usually very time sensitive. When your client has to settle, he has to settle – the financial consequences of not completing are dire.
Whether it’s capitalising on an opportunity or sidestepping a potential problem, there’s a lot of upside in diversifying into the lucrative sector of providing short-term finance.
