New Lenders Counter Bank Dissapointment

"Many homebuyers who come to us have had their loan applications rejected by banks due to poor credit history, insufficient financial information or inadequate deposit," says Mr Maynard, Director of The Mortgage Store.

"Thanks to new players entering the 'non-conforming' loan market, mortgage lenders can now offer finance to homebuyers who are unable to get finance through traditional banks and non-bank lenders."

The growth in non-conforming loans follows huge success in the United Kingdom and the United States. One UK market leader, Kensington Mortgage Company, has written 25,000 non-conforming loans totalling over 1.5 billion pounds since it was founded in September 1995.*

"The emergence of larger finance companies offering non-conforming loans in Australia has resulted in more competitive loans being available to borrowers," says Mr Maynard.

"The good news for Australian homebuyers is that non-conforming lenders are now on offer at interest rates between 8.5% and 11% for both residential and commercial property. In the past homebuyers had to obtain loans through solicitors with interest rates as high as 10-20%."

As many non-conforming lenders don't advertise or only deal with mortgage brokers, many borrowers are unaware of the non-conforming loan option.

"Those who suffer the embarrassment of having loan applications repeatedly declined by banks and non-bank lenders are more likely to withdraw from the purchase of a property," says Mr Maynard.

The Mortgage Store recommends borrowers find the right non-conforming lender the one that is most likely to approve their loan as well as offer the most competitive rate. This is when the financial services and expertise of a mortgage brokers become essential.

"The variation of interest rates, fees and charges as well as the complexities of different lending policies between non-conforming lenders is enormous. For instance, variation between non-conforming loan interest rates is much higher than traditional home loans.  The difference can be as much as 3-5% for non-conforming loans compared with that of 0.5% to 1% for traditional loans," says Mr Maynard.

Using a mortgage broker to periodically review a non-conforming loan may also reduce the length of time higher interest rates are paid.

"Once the borrower has overcome the obstacles which prevented their approval on a traditional loan product, the loan can be refinanced with another lender that offers a cheaper interest rate.  The fact that they have a loan repayment history and greater equity in the property will further strengthen their ability to refinance," says Mr Maynard.

Non-conforming lenders specialise in loans for people with a variety of financial problems, such as poor credit history or credit defaults, self-employed people with no financial documentation or tax returns not reflecting a clients' true borrowing capacity.

One such non-conforming lender, GE Mortgages, will lend up to 90% of the value of a property without mortgage insurance provided the borrower can demonstrate they can afford the loan repayments. The GE loan allows the deposit to be borrowed elsewhere provided the borrower can still demonstrate serviceability.

Other non-conforming lenders specialise in 'low doc' loans for people who are behind in their tax returns, who have recently become self-employed or self-employed borrowers unable to demonstrate sufficient income due to high deductions. Lenders of low doc loans require the borrower to have a minimum of 25% equity or deposit.

The Mortgage Store offers free finance help to non-conforming home loan applicants.

KB:     Q0016
Last Updated:     26 Sep 2006

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