Specialist Loans and How It Can Help You
Pepper Money’s General Manager, Mortgage and Commercial Lending, Barry Saoud
What type of customers can benefit from specialist loans? How does it help brokers?
“It’s really important to start with a definition here. We don’t have agreed terms in our industry for categories of loans. Specialist loans in this article actually means non-bank. Non-bank loans cover a range of categories of loans, all designed to provide flexible financial options for borrowers who don’t meet the requirements of banks, for a wide range of reasons.”
“Broadly speaking, there are key reasons a borrower won’t meet the lending requirements set out by traditional lenders. For some it may be a case of not meeting credit scoring requirements; for others it may be down to an impaired credit history; or, for some, because they can’t provide traditional income verification documents.”
“Income is a good example. In real life today, many clients earn money in non-traditional ways. From the self-employed, to shift workers, casual workers, people with more than one job, people with income from benefits, and so on. You’ve got this big group of Australians, earing good money, shut out of ‘traditional loans simply because they don’t fit the strict income criteria of the banks.”
“That’s where a non-bank like Pepper Money has the flexibility to make lending for these real-life situations possible. We’ve always been passionate about providing real life solutions – particularly in the more complex specialist lending category, where people are doing it toughest. If we can find a way to help, we will. We are constantly uncovering ‘yes’s’ when there are ‘no’s’ and we keep testing the boundaries.”
“Pepper Money is in the business of helping people succeed and making sure that no one is falling through the cracks, if we can help them, we will. We understand the needs of the different types of borrowers, and we intimately understand risk; that allows us to assess each loan application on its individual merits.
“In our non-bank world, it’s not just about home loans, we work with all sorts of people and businesses, from blue chip to blue collar, we specialise in developing new ways of doing things across all the big financial categories of lending – from home loans, car and electric vehicle loans, equipment and asset finance, commercial loans, and personal loans.”
“We are constant in our mission – to help people succeed – and that means supporting brokers who are there to help customers achieve their goals – particularly when they may seem out of reach. So, when, and for whatever reason, the traditional lenders narrow their lending spectrum, we are ready to lean in and assist.”
Is the specialist lending customer segment growing and if so, why? What are the current trends and your predictions for this market in 2023?
“We have a situation of rising rates, increasing cost of living pressures and a context of evolving circumstances of many Australian borrowers coming off fixed rates. In this environment, specialist lending is likely to see increased demand. There are borrowers who would have been considered bank borrowers just two years ago who may be locked out of a loan today with a major bank and instead fall into the category of specialist non bank borrowers.”
“With the cost of living pressures building, a few defaults or arrears on a borrower’s existing loans will typically be turned away from mainstream banks until a significant amount of time has passed. Specialist lending gives these borrowers the chance to consolidate their debts and considers the whole picture.”
“Specialist lending will become more relevant as customers experience unprecedented events both emotionally and financially this year.”
“I think we’re going to see the needs of many borrowers evolve in this shifting and volatile environment; as a result, greater appetite for specialist lending options – more so than ever. More brokers are seeking the assistance of specialist lenders – and they are doing so across a wide range of borrower profiles. From the growing self-employed market to people with different types of income, to traditional PAYG. It can be as broad as those recovering after a life event to customers building a property profile; the need for alternative and specialist lending will continue to grow and build momentum.”
“As we navigate through another challenging year, a lender that can support customers by considering their current income and situation will be important to helping those people and businesses to continue moving forward. As this plays out more brokers – and in turn, their customers – will begin to understand the real value that non-bank lenders like Pepper Money can provide for them.”
“Looking ahead and beyond the current environment, specialist lending will always be needed to provide solutions for customers that don’t meet the mainstream bank lending criteria and require a non-bank lender like Pepper Money that will consider their individual circumstances.”
How do you assist brokers to operate in this space? What skills are needed?
"Pepper Money has made non-bank lending easy to do;
and we’ve invested in heavily over the past 24 months perfecting the products, processes, people, policy, and technology to make non-bank easy.
“Our research tells us that some brokers think non-banking is too hard. But as soon as they give it a try, they realise how big an opportunity it is. And the reality is that we have made it easier than ever. If you haven’t done it, try us. Don’t assume you know where the non-bank boundaries are either – we are constantly evolving our processes, products, and policies to adapt with the market and your clients’ changing needs. We’re experienced and nimble enough to keep working on making non-bank lending easier than ever.”
“Importantly, we are constantly investing in the technologies that support the what, when, and why of every interaction.”
"We offer best in class education, partnering with aggregators and brokers
to deliver targeted education events, and hands on support from our great teams. We’re helping brokers learn more about the opportunities that exist in their business for specialist lending.”
“The diversity and breadth of our non bank solutions
give brokers an advantage over traditional and direct lenders as it completes the full set of available lending options to satisfy a much broader range of client needs. Having access to the breadth of our non-bank specialist lending products across categories from personal to commercial is key to brokers continuing to play an important role in the lending marketplace, enabling diversification and delivering healthy competition for borrowers.”
“Because we’ve made non bank lending easy to do, it’s the soft skills that will make a difference for the client and a ‘can do’ attitude that is needed to push the boundaries.”
What is the awareness among brokers and their clients about this type of lending?
“I think a lot of brokers are aware of the growing cohort of borrowers that require a specialist loan but equally there are misconceptions about non-bank lending to address.”
Non-banking is not short term.
We hear some brokers positioning the non-bank option as a short-term solution for their specialist clients however, that’s just not the case. We can and do work with brokers to refinance clients as their situation changes into a more suitable product. Your client might start on with a complex situation that requires one product. But if the client’s circumstances change over the life of their loan, we've got the ability to then product swap them into another, which could mean a lower rate.
So, it’s a mistake to think of us as a short-term solution when we can be there for the long-term journey. Making everyone’s life easier. The bottom line is that a borrower’s circumstances can change frequently, as do lender appetites.
Often the borrower that is considered a ‘specialist’ customer today, will have more options available tomorrow. We don’t let the past or ‘rough times’ define the customer’s future.
Non-bank lending is not just residential.
There’s also a need to build awareness about the non-bank opportunity for brokers beyond residential lending. Commercial lending is on the rise and the demand is strong. The value of commercial loans settled by mortgage brokers recorded its highest ever value at $15.98 billion, up $5.71 billion or 55.5% year-on-year. We’re backing the growing number of brokers that are diversifying their offering and supporting another SME’s business. But there are others who need to know about it.
Non-banking is not standing still.
Things may not be as you thought, it’s crucial to keep up to date as things change. For example, we recently made a huge announcement that was positively welcomed by the industry. From removing clawback on commercial loans, we’re also expanding our ability to fund commercial properties across Australia including non-metropolitan and regional areas and simplified our fees and reduced legal charges.
“We keep making it even easier to partner with us at Pepper Money. There’s never been a better time for mortgage brokers to expand their knowledge, develop new skills and diversify to include commercial property loans.”
Non-bank lending is really rewarding.
The value proposition of a broker has never been more relevant. Brokers are uniquely placed to offer the broadest range of lending options that a customer may need to find a solution. I think we’ll see even more of this in 2023 as customers will be looking to brokers for guidance and support as they navigate through a different (and increasingly difficult) landscape. When a broker finds a specialist solution for these customers, we know it’s genuinely rewarding. Ultimately, by helping a customer navigate a complex and at times a highly emotional journey with a specialist solution, you will earn their trust and have an advocate for life.
“Don’t put specialist lending in the ‘too hard basket’, the reality is, Pepper Money has made it easier than ever. If you haven’t done it, try us. And don’t assume you know where the boundaries are – we are constantly evolving our products, processes, and policies to open more non-banking opportunities.”
