Don't Fear the Second Tier
I've been in banking and finance for 26 years and 16 of those years I worked for a large bank. So, it would be fair to say, that I have an inbred conservative banker in me. Even though I have been a mortgage broker for over 10 years it is still there. Deeply ingrained in my psyche.
Over the last three years banks have considerably tightened their lending criteria. Gone are the days of approving loans based on your previous history & good character. These days loans seem to be approved on the basis of the "computer says yes" or "the computer says no". Back in my day you could approve lending as a gut feeling of whether it will work or not. This combined with a bit of common sense was a great personable way to do business. Granted times have changed and so must we, but it’s a shame when personal banking seems to have morphed into impersonal banking.
As a reformed conservative banker those changes have meant on occasion that I’ve had to look for alternative lending options for my clients. So, over the last few years I have been financing more clients through second tier finance options.
These second tier finance companies are not banks and operate with a different set of rules and criteria than a main trading bank. I like to call it the ‘commonsense rules’. It has taken me a while to get my head around these types of lenders, because when I worked in the bank we were conditioned to believe that second tier lenders were only for people who had credit issues, clients you didn’t want, or clients that would never obtain finance through a bank (ex-bankrupt etc.). So those clients would finance their lending through a second-tier lender and paid a premium for it. Who needed those clients I thought? Let the second tier lenders deal with them.
Well, as times have changed, I can safely say so has my view on second tier lenders. What a breath of fresh air they are. They use common sense for their approvals, and are keen to help in whatever format they can. In every case they have been great to talk to and always willing to help in anyway they can. Yes, their interest rates are higher, and yes, fees will be charged. But if it gets you into your new home, helps complete a property development, enables you to purchase a rental property or helps with a business, then the fees and interest rates are a small price to pay, particularly when you have a longer term strategy to return to main stream banks (if you wish).
We are often queried about the interest rates of second tier lenders, and all in all they are pretty good. Some of the interest rates available are equivalent to standard interest rates offered by banks a few years ago & we need to remember that banks are offering record low interest rates at the moment and at some point these will rise.
More and more we are looking to second tier finance as an option. And I love it. It is an opportunity for me to present and assess deals the way I use to enjoy. Second tier lenders are not there to approve every deal we submit. You still need to confirm some sort of income (not always though) and provide security but the way these are assessed are very different to a main trading bank. They use common sense rules where common sense applies.
Depending on your preferences you can utilise a second tier lender for as little as 6-12 months with a view to returning to a main trading bank after this time. Or we can take a medium term option of 3-5 years. Every client is different, and we always assess to see if you’ll meet the main trading bank lending requirements first. If not, then we will suggest a second tier lender of which we have a wide variety of providers who are happy to assist.
Please note that in some instances finance companies do pay us a brokerage, however others do not. So potentially a mortgage broker may charge a fee to arrange the loan for you. We operate on the basis that if we look to refinance you back to a main trading bank within 6-12 months then that fee will be kept to a minimum.
So, if you are not sure where your application sits, and the bank has recently declined your loan. Give us a call, we have access to dozens of second tier options and will help find a solution for you.