Over the past 6 months, co-incidentally as the Banking Royal Commission was announced, we are now evidencing the withdrawal of some of the traditional financing products generally a major Bank would offer to the consumer and businesses. Last week Commonwealth Bank was the latest to withdraw from the Self Managed Superannuation Fund borrowing market, leaving NAB as the only major bank to offer this in the Commercial space. No major lender now offers residential SMSF loans. Commercial property funding is getting more and more difficult, following Westpac withdrawing development and investment funding unless they have all of a client’s banking under their management. Property developers are struggling to find finance given their inability to attract investors reducing the level of pre-sale requirements to meet the banks finance conditions. And most notably, lenders re-directing consumers to principal and interest loans, reducing the appetite for residential investment finance. Concerned?
Maybe, may be not!
It is a concern that over 80% of the finance market is funded by the 4 major banks in this country, and therefore a knock on affect will occur through our economy. The banks are policy rigid at present, meaning that they are validating living expenses against bank and credit card statements, tightening internal servicing calculators with discounted rental, bonus and commission incomes, taking away negative gearing benefits, and instructing valuers to be a little more conservative with property valuations.
Overriding all this and amplified recently by the Governor of the Reserve Bank, is to shop around for a better deal. Whilst interest rates continue to be low, and I believe will stay this way in the short to medium term, many 2nd tier banks are very competitive. Where you will need to seek a discount on your rate through a major lender, as they generally stay at the higher end, 2nd tier banks are offering rates lower then the discounted major bank rates. This is because the 2nd tier lenders are now on the same pricing page as major banks, and these lenders are often cheaper to operate then the Big 4 who generally pass on these costs to the borrower.
The other unknown, although I believe will be a game changer in this country, is the number of Private Funders entering the market backed by large amounts of cashed up investors from Asia, Europe and USA. Historically these lenders were restrictive, expensive and came with higher upfront fees, however this year we have seen Private funders move into niches such as non-pre-sale property development finance with rates & fees around the 9%-11% mark, or lending to a company against a residential property with limited financial information and cash out scenario’s at rates of around 6.95%. I am sure we are also going to start seeing Private Lenders come into the SMSF market soon.
In the next 5-10 years, I believe Private Lending will be a part of the mainstream funders we see today and nothing is more evident then what I recently observed when I attended the largest US Commercial broker conference in Orlando Florida. There were 80 US East Coast Private lenders with the ability to settle deals within hours, backed by large Wall St hedge and insurance funders. This I believe is the way of the future. Mainstream lenders will continue to serve an important purpose in our economy, but the market will continue to become more competitive, and the Major banks chained to higher regulatory requirements will continue to diminish market share. We may have a Royal Commission, but market forces will be a greater threat to the Major Banks in the long-term.
The market is changing, and yes this brings concerns, but it also brings opportunities for an entrepreneurial country such as ours. The Banking Royal commission will be a changing force, and Private Lenders will eventually fill this void as the Banks continue to shed products and staff. We have access to over 60 Mainstream and Private Lenders, with plenty of options, so if you are a bit stuck in finding finance, give us a call.