Help for borrowers overlooked by the banks
Most Australian banks focus on borrowers who work in PAYG, full-time permanent jobs – but for people who are self-employed or contractors, it’s non-bank lenders that offer a solution: near prime loans
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BORROWING MONEY to buy a home is harder now than it was in 2021.
The days of record-low interest rates are over, with the official cash rate sitting at 3.10% in December.
Lending criteria are tougher, and borrowing capacity has also been reduced, while cost of living pressures, supply chain issues and labour shortages are making life difficult for the self-employed, contractors, freelancers and SME owners – in short, anyone whose circumstances don’t fit a ‘vanilla’ prime-customer profile.
So, how do these types of customers who fall outside the prime-borrower target market of banks gain access to the finance they need?
The answer is near prime lending. MPA catches up with non-banks Resimac and Pepper Money to find out how these loans can benefit brokers and their customers.
The shift to remote work has accelerated the trend. People are realizing they don’t need to be in urban centres and can get more space for less money in the suburbs.
“We are still seeing strong lease-up in those communities,” Romundt says. “There are some who say when the pandemic ends, this all goes back to normal, but I don’t ascribe to that view. Some of those people moving to the suburbs will find it is pretty good, and employees will expect to be offered workfrom- home days as a benefit. Even if it is not every day, it will become a more lasting trend, allowing people to live in the suburbs.”
This deurbanization is occurring across Canada, Romundt says – people are going from big cities to medium and smaller ones all around the country, and he doesn’t foresee this ending anytime soon.
solutions, as well as get some tips for navigating the emotional aspect of the customer’s lending experience.”
Saoud says borrowers who need a near prime product may well have a different set of circumstances months or years down the road. “If the customer’s situation improves over time, then we can work with them and their broker to find an alternative solution to meet their needs.”
Paterson says Resimac has a highly regarded team of BDMs who are always looking to do more for aggregators and brokers.
“At our core, we are a relationship-based company, and our BDMs will take the time to get to know each broker’s business and the challenges it faces when it comes to better serving their customers,” he says.
Resimac’s BDMs act as an essential resource for brokers when it comes to near prime customers, who typically aren’t as well understood as traditional prime borrowers.
“Their depth of experience with different types of customers and expert knowledge on our credit policy and products mean they can quickly and consistently workshop scenarios with their brokers.”
Paterson says Resimac also ensures its turnaround times are as short as possible. “We have made great improvements on that front this year, thanks to improving our origination platforms.”
Resimac’s broker partners can find some handy documents that will help them save time and effort on BrokerZone.
“Our supporting documents checklist gives brokers a comprehensive list of the documents needed for each application, and our product and policy guide and product specifications map out the features and requirements of our products,” Paterson says.
2.7 million casual employees
(23% of employees, 20% of
total employed), up from
2.4 million in August 2021
Casual employees and independent contractors, as at August 2022
All of Resimac’s loan products come with features such as offset accounts, redraw and Visa debit cards to access the funds in customers’ offset/redraw accounts.
Saoud says that increasingly, more customers are finding themselves underserved by banks at a time when they need them the most.
“Unlike traditional lenders, at Pepper Money we assess borrowers by applying a real-life approach to income verification on a case-by-case basis,” he says.
The lender’s common-sense approach allows it to look at a wide range of factors when assessing any application for a home loan, because “we get that real life is different for different people”.
“We’re flexible and nimble and have developed a range of products that look at where our customer is headed to ensure the past doesn’t define future potential.”
The key position Pepper Money takes is to understand the credit profile and nuances of a near prime customer, says Saoud.
Pepper Money expects the credit policies and serviceability standards of traditional lenders to further tighten and that more borrowers will be turned down by the banks.
“This is a golden opportunity for us as a non-bank to help more borrowers who may find it challenging to meet the standards of a traditional lender.”
Broker partnerships
Saoud says it’s more vital than ever for brokers to transform and adapt to the changes in the lending and borrower landscape.
“The conversations brokers should be having with their near prime clients should allow them to better understand their unique financial position, loan purpose and objectives, employment profile, repayment or saving history and debt position, as well as any history of adverse credit issues.”
Brokers play an important role in educating and positioning a near prime loan solution for a customer, says Saoud.
“Pepper Money’s education resources, guides and BDMs can support brokers to successfully offer and position alternative lending
Resimac is one of Australia and New Zealand’s premier non-bank lenders. We offer competitive interest rates and flexible home loan options with great features, including offset accounts and the ability to make extra repayments and redraw funds. Thanks to our flexible funding program, we provide solutions for a wide range of customers, including the self-employed and contractors as well as customers with previous credit impairments, through our network of over 12,000 broker partners.
Find out more
Pepper Money is a people-focused non-bank, providing a refreshingly real-life approach to lending across home loans, commercial loans, equipment finance and car loans. We work with all sorts of people and businesses, from blue-collar to blue-chip. Whatever the circumstances, we take a uniquely flexible human approach, assessing each person’s situation individually.
Since 2000, we have helped well over 375,000 Australians achieve their financial goals, often when other lenders have said no.
We’re humbled to be consistently recognised as Australia’s leading non-bank lender, known for being broker-friendly with supportive and responsive BDMs, having a brand that’s recognised and trusted by its customers, and offering a wide range of products that meet different customer needs, especially for non-conforming and self-employed customers.
Find out more
“Most players in this industry are looking at this and see why apartment values are going up, not down,” he says. “Most building owners are looking straight through [the pandemic]. Even if they own in an area where rents are soft today, this will come back when the borders open, students return and we are bringing 400,000 people in per year. We are not building enough housing for that many people.
“Pre-pandemic, the market was super tight almost everywhere, so I see that when the pandemic ends or at least the borders reopen, the demand for rental units will
“Pepper Money’s education resources, guides and BDMs can support brokers to successfully offer and position alternative lending solutions, as well as get some tips in navigating the emotional aspect of the customer’s lending experience”
Barry Saoud,
Pepper
In Partnership with
What is near prime lending?
Resimac general manager, distribution, Chris Paterson says near prime lending is about providing solutions to customers who fall just outside the scope of traditional lending policy.
“These customers may be self-employed, they may have experienced temporary financial hardship due to an event such as a health condition or relationship breakdown, or their employment and income may fall outside the standing lending guidelines,” Paterson says.
“Increasingly, we’re finding that more people aren’t meeting prime lending requirements; however, they’re still considered good borrowers who need a finance solution. Our near prime products provide this.”
Pepper Money general manager, mortgage and commercial lending, Barry Saoud says a near prime loan is designed for borrowers who don’t quite meet the requirements of the big banks or traditional lenders.
“It’s an alternative that often has many of the same benefits of a ‘regular’ loan,” Saoud says.
“Near prime borrowers generally have a credit profile that falls between prime and specialist. These borrowers are close enough to ‘prime’ territory that, with consistent habits or small changes to their circumstances, it’s very possible to improve their approval odds for prime loans with the most favourable terms.”
Borrowers who may suit a near prime loan include those with multiple sources of income (such as a second job or investment income); those who rely on bonuses or commissions, overtime, or other fluctuating income streams; those with a small blip on their credit file; or any other unusual borrowing situation.
“Broadly, if someone has trouble getting a bank loan, near prime might be a better fit,” Saoud says.
Opportunities for brokers
Paterson says that in this market, diversifying your customer base is always a good idea.
“There’s a common misconception that near prime clients are more difficult than prime clients, or not worth the hassle, but it’s really just a matter of understanding which lenders specialise in this area and knowing which solutions are best suited for them.”
Paterson says that, anecdotally, he has seen that many near prime clients – particularly the self-employed – are especially receptive to word-of-mouth marketing, as they know that service providers who specialise in their segment are few and far between. This gives brokers a great opportunity to create new referral networks.
Saoud points out that brokers play an important role in providing choice and access to options, even for those customers who may not fit a prime loan.
He says brokers diversifying into near prime lending can grow their businesses by attracting more diverse customers and serving more of the needs of their existing customers.
Pepper Money has a number of strong support systems, from the credit scenarios team to the lender’s very experienced BDMs. Saoud says Pepper Money’s market-leading PPS tool enables brokers to identify the right home loan solution in a matter of minutes.
“Our digital verification tools and automated PPS decisioning enable brokers to spend less time on paperwork and focus on the people behind the loan,” he says.
“We maintain an open communication channel between the BDM network and credit team, which has allowed these complex and unique scenarios to be explored and approved efficiently and effectively. We also know how critical real-time approval confidence and credit decisioning are to brokers and to all types of borrowers.”
Looking ahead
At Resimac, many borrowers have been coming to the lender with fixed-term mortgages that are due to expire in 2023.
“These borrowers would have fixed their mortgages at a time when rates were at an all-time low, so they’ll be facing substantially higher interest rates when their fixed terms finish,” says Paterson. “Brokers have an opportunity to help these borrowers by reviewing their monthly outgoings and educating them on their debt consolidation options.”
Paterson expects that more first home buyers and existing property owners looking to refinance will fall into the near prime space.
“Where previously they may have qualified as a prime borrower, changes in market conditions may mean borrowers will be looking for near prime solutions.”
Saoud says the market for near prime lending will only continue to grow in 2023. Pepper Money is also expanding its suite of options to deliver additional mortgage and commercial solutions that unlock new customer market segments.
He says as more borrowers with diverse financial backgrounds seek out someone who understands them and is willing to take a look at their unique situations, brokers will become more important than ever.
“We are constantly listening to our brokers and their customers to inform how we can shift or adapt our credit policies to ensure greater coverage of the underserved cohort of borrowers in the market. There is a massive opportunity for brokers to meet the shifting needs of their customers, and we’re backing brokers to meet this demand.”
Saoud says Pepper Money has ambitious plans for the next 12 months.
“Our investment in technology provides scale and efficiency, enabling us to manage increasing application volumes whilst maintaining our industry-leading turnaround times. We have plans to enhance and extend our loan options and accelerate the rollout of our digital lead-generation tools to our broker network.”
“There’s a common misconception that near prime clients are more difficult than prime clients ... but it’s really just a matter of understanding which lenders specialise in this area and knowing which solutions are best suited for them”
Chris Paterson,
Resimac
Industry experts
Barry Saoud
Pepper Money
Chris Paterson
Resimac
Industry experts
Chris has more than 15 years’ experience at Resimac as a BDM, business analyst, and head of product and commercial operations. He brings deep expertise to the role of general manager distribution. Chris has been working closely with direct, broker, and wholesale distribution to develop products tailored to various audiences for more than a decade, and has been heavily involved in the implementation of technology solutions to streamline workflows. Chris holds a BA in communications from Western Sydney University and a Certificate IV in financial services (finance and mortgage broking).
Resimac
Chris Paterson
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending, and is responsible for its strategic direction and operating performance across product, credit, and settlement sales functions for Australia and New Zealand mortgages, commercial loans, personal loans, and direct sales. With over two decades' experience in financial services, Barry has held numerous roles across areas ranging from legal to company secretary to sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC, and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Barry Saoud
Pepper Money
Chris Paterson
Resimac
Industry experts
Chris has more than 15 years’ experience at Resimac as a BDM, business analyst, and head of product and commercial operations. He brings deep expertise to the role of general manager distribution. Chris has been working closely with direct, broker, and wholesale distribution to develop products tailored to various audiences for more than a decade, and has been heavily involved in the implementation of technology solutions to streamline workflows. Chris holds a BA in communications from Western Sydney University and a Certificate IV in financial services (finance and mortgage broking).
Resimac
Chris Paterson
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending, and is responsible for its strategic direction and operating performance across product, credit, and settlement sales functions for Australia and New Zealand mortgages, commercial loans, personal loans, and direct sales. With over two decades' experience in financial services, Barry has held numerous roles across areas ranging from legal to company secretary to sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC, and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
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Chris Paterson
Resimac
Barry Saoud
Pepper Money
Stewart Saunders
Heritage Bank
Christopher Lee
MFAA head credit adviser, Finsure Finance and Insurance
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MFAA head credit adviser, Finsure Finance and Insurance
Mark HarChristopher Leeon
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Heritage Bank
Stewart Saunders
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending, and is responsible for its strategic direction and operating performance across product, credit and settlement sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades' experience in financial services, Saoud has held numerous roles across areas ranging from legal to company secretary to sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Chris Paterson has gained more than 15 years’ experience at Resimac as a BDM, business analyst and head of product and commercial operations. He brings deep expertise to the role of general manager distribution. Paterson has been working closely with direct, broker and wholesale distribution to develop products tailored to various audiences for more than a decade, and has been heavily involved in the implementation of technology solutions to streamline workflows. He holds a BA in communications from Western Sydney University and a Certificate IV in financial services (finance and mortgage broking).
Resimac
Chris Paterson
Paterson says that while the prime lending market is extremely competitive, the near prime space offers more opportunity for Resimac to differentiate itself and fill a real need in the market.
Resimac’s near prime customer base is growing month-on-month, and it has made a strategic decision to increase its focus on near prime and specialist customers, a segment underserved by the main banks.
“The coronavirus lockdowns caused a lot of people to have their work disrupted, affecting their ability to buy a home or make repayments,” Paterson says.
“These are examples of people who fall outside traditional lending policy and thus find it difficult to get a loan from a mainstream bank – those who’ve had a temporary disruption to their finances but are still in need of a lending solution.”
Near prime loan products
Paterson says Resimac is well positioned to help near prime borrowers because it has an established credit policy that caters to these customers.
“Historically, Resimac has been a near prime and specialist lender, although we have since expanded our remit to offer prime lending products,” he says.
As a non-bank, Resimac also takes a more flexible approach than mainstream lenders to near prime borrowers, says Paterson. “We will take the time to consider a near prime applicant’s wider circumstances and offer a range of income verification methods to see whether they fit.”
These methods could include a financial declaration supported by one of the following:
• accountant’s verification
• six months of business activity statements
• three months of business bank statements
Paterson says the other advantage for brokers coming to Resimac is that it offers near prime and specialist products for full-doc and alt-doc applicants, and these products are fully featured in terms of offset and transactional functionality.
“We also have a broad policy that caters to debt consolidation and cashout.”
Paterson says because Resimac offers a full range of lending products, from prime to specialist, borrowers can use its near prime products as a stepping stone to help them improve their credit history and eventually move on to a prime product.
1.1 million independent contractors
(8.3% of total employed)
21% of employees
didn't have minimum guaranteed hours, up from
20% in August 2016
3.4% of employees
were employed on a
fixed-term contract
Source: Australian Bureau of Statistics, 2022
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VALUE AND MARKET SHARE OF BROKER-ORIGINATED BUSINESS TO NON-BANK LENDERS
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$2.45bn
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$3.20bn
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$4.21bn
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$3.57bn
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$3.37bn
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$3.54bn
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$3.64bn
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$3.81bn
Apr-Jun 20
$3.11bn
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$2.67bn
Oct-Dec 20
$3.26bn
Jan-Mar 21
$3.39bn
Apr-Jun 21
$3.11bn
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$1bn
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17
Oct-Dec 21
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$4.91bn
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$5.11bn
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6.3%
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5.6%
6.3%
Value of non-bank lending
Non-bank lending as % of
new loans originated
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Customer focus and sector growth
Since pioneering and launching near prime mortgages in Australia in 2012, Saoud says Pepper Money has continued to see strong growth opportunities in near prime – the company’s fastest-growing mortgage lending sector.
“There is an obvious dynamic shift in lending at the moment,” he says. “Policies and regulation changes are more frequent, and there’s been a change in the borrower and employment landscape, which will increasingly require a flexible approach in 2023.”
Paterson says near prime customers are of increasing importance to Resimac, making up about 65% of its customer base.
“This percentage continues to trend upward as more people find themselves in different financial situations from where they were two or three years ago,” he says. “This includes many switching from conventional employment situations to being self-employed, contracting or freelancing.”
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$5.11bn
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4.9%
4.7%
5.7%
6.9%
7.5%
7.7%
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9.2%
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8.3%
6.3%
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Value of non-bank lending
Non-bank lending as % of
new loans originated
Click to show separately
VALUE AND MARKET SHARE OF BROKER-ORIGINATED BUSINESS TO NON-BANK LENDERS