Case Study: Why you need access to many lenders

Interest rate announcement – April 2018

Today the Reserve Bank of Australia met to review the official cash rate. After last cutting rates in August 2016, the RBA have again decided to leave the cash rate on hold at 1.50% this month.

When experienced property investor Tim Gordon agreed to buy a block of land, he didn’t expect the land’s mining-town location to make it difficult to secure finance. After failing to find a lender who could help him, he visited a finance broker who found just the right mortgage for his needs.

Tim Gordon, an experienced property investor and engineer who works in mining, agreed to buy a block of land in a mining town. He had arranged pre-approval directly with a lender however, when it came time to settle 18 months later, the pre-approval had expired and the lender had changed its policy on mortgages in mining towns, leaving Tim with a looming settlement and no finance.

Tim applied directly to a wide range of lenders, but was unable to secure the finance he required. In a bind, he visited a finance broker just 10 days before settlement.

The rental return is crazy in the area, around 15 to 20 per cent. But the risk is higher,” Tim’s credit adviser says. “So most lenders have restrictions in mining towns and cap mortgages at a 60, 70 or 80 per cent loan-to-value ratio (LVR). No one was willing to finance 90 per cent of the property value, which is what he needed. By the time he came to me, he had a very ugly looking credit file and not many options left.”

Looking through Tim’s file, his credit adviser noted his large income. Thinking that there was one lender she could get this deal over the line with, he started working on mitigating the sore points of his application.

“I did a big submission, but the lender does credit scoring so, with Tim’s credit file, that was something that I had to try to mitigate,” he says.

Knowing that the next hurdle – if the lender approved the application – would be gaining approval for lenders’ mortgage insurance (LMI), Tim’s finance broker worked on having LMI waived.

“When there’s LMI involved, an application has to go to the mortgage insurer for final approval, but we were able to get the LMI waived so that the lender could just approve the application based on its own policy,” he says. “So Tim saved on LMI cost and didn’t have to go through that additional sign off, which most likely would not have come through.”

Ahead of settlement, the loan was approved and finance came through, and Tim and his finance broker are now working on securing finance for him to build on the land.

“It took a lot of work on the application for what was really a small loan to be honest,” Tim’s finance broker says. “He was just in such a pickle, and it’s really what we do – we help a lot of customers who have either been declined elsewhere or are in sticky situations.”