At My Mortgage the large majority of the clients we work with we are looking at the main banks as the best option for them. At the main banks you can get the best interest rates usually and utilise things like their great online banking and other products like credit cards etc.
However, not everyone or every situation fits with the main banks and when that is the case, second tier lenders can be a great options. These lenders are reputable trusts, credit unions and other lenders that have been around for years and years and work specifically with the applications that don't fit with the main banks. Please don't think they are loan sharks or pay day lenders. No where near that.
When do we see second tier lenders as a good option?
There are 3 parts of lending and if one of them is not quite what the main banks like to work with, that is where second tier lenders come in.
- Cash Flow
Cashflow (i.e. Income)
If you are at a point in your life where your income isn't quite as the banks want it to be, a second tier lender might be a great fit. There are a lot of reasons why you may fit into this category.
- Those heading into or already in retirement but have an exit strategy to pay back lending in 12 to 24 months
- New to business and your income isn't showing in financials yet
- A change in personal situation where your income has been limited in the short term
Character (i.e your personal financial history)
The lenders can only rely on your historical financial situations as a determinant of your ongoing financial situations but we all realise that there are a lot of reasons why people may have found themselves in historically bad situations that end up on their credit report. Things like being made bankrupt, large credit defaults and businesses in liquidation can all be things that are beyond your control at times and so second tier lenders are often comfortable about lending to people in these situations.
Collateral (i.e What you are trying to lend for)
The main banks are often only interested in properties that fit their "box". Residential, standard homes. But not all properties fit into that category. Some properties have large upsides that we can all see but don't fit into bank policies. For example:
- Properties that have had damage or are contaminated that you have the skills and resource to fix
- Properties that may be difficult for a bank to walk in and sell
- Property developments that there may be no income from in the medium term
Things still need to have 2 out of 3 in their favour
By this we mean, if your credit history has a few bumps in it, then you will need to have good income and be looking at a standard residential property for second tier lenders to be an options for you.
If the property is in a contaminated state (a meth lab for instance) you need to have a great track record from a credit point of view and have good income to support this type of application.
And if you are heading into retirement and have a large asset base but don't have the same income you once had, have been a borrower for a long time and a good credit history and looking to buy a family property needing to be funded for the short term, then second tier could be a good option.
What about deposits/ required equity & interest rates?
Most second tier lenders will start looking at applications when there is a good deposit or amount or equity in them (more than 20%) and in some instances, depending on the situation may require up to 50% deposit. This is all about them mitigating risk. There is often not a lot of wiggle room in those rules so that is something to be aware of if you are looking at this type of lending.
The interest rates will range from as low as 3% to 8% depending on what you are wanting to do and your personal situation. We will outline all costs and repayments etc before you do anything so there will be no surprises.
How does My Mortgage manage these type of applications?
Here at My Mortgage we have a specialist team of people we work with who know second tier lending inside and out. They know the best lenders for the type of application we have. We work closely with you to get the required information and work with our second tier lending team to make sure we find what will work for you.
Our plan is always to get you to a main bank as quickly as possible or pay off the lending so we will have that always in the front of what we do.
Touch base with the My Mortgage team if you are interested in second tier lending or think your situation is a little trickier than normal.