With banks in Australia continuing to tighten their investor lending criteria, a growing number of investors looking to invest in property Down Under are turning to second-tier lenders to bridge the gap.
Fresh loan-to-value restrictions and bank capital requirements have made it harder for buy-to-let landlords and developers in Australia to secure loans with a deposit of less than 40%, as reflected by a fall in lending to investors, which has dropped from $1.15bn (£712m) in January 2015, to $961m (£595m) this year - just $7m (£4.3m) of that was secured with a deposit of less than 20%, according to data provided by the Reserve Bank.
Although loans offered by second-tier lenders tend to be more expensive, they do help investors avoid delays with securing finance, which can result in a potentially lucrative investment opportunity being missed.
Second-tier loans were once perceived as a ‘last resort’ lending option. But with a growing number of borrowers attracted to the greater flexibility offered by alternative finance providers, it is currently growing faster than the mainstream mortgage market, as reflected by the increasing number of loans written with a second mortgage behind them, according to Jenny Campbell, chief executive of the Mortgage Supply Co.
She told the press: “In the old days, a bank might do 80% [of lending] and the second-tier lender 10% to 15%. We are seeing more of that.”
Campbell also said that more investors were turning to credit unions, which also operate outside the Reserve Bank rules, while peer-to-peer loans are another option that is proving “really attractive for investors”, she added.