The scenario
There are many ways that clients find you, and in this instance the client was an old friend of mine who I went to university with, and who I had worked with in the past. He was in a stable job as a national sales manager and earned a good income, but he didn’t have a strong savings history or a good credit score. He was looking to purchase a home from a family member to live in, and there was quite a unique set of issues to deal with.
The first was that the client wasn’t able to provide evidence of genuine savings, which was an issue for some lenders, given that he was looking at an 88% LVR against the purchase price.
The second complication was that the client had outstanding fines owed to Fines Victoria and was on a repayment plan.
The third – and we only realised this after we were well into the process of talking to lenders – was that his credit score was roughly 500, which is quite low, and there were late credit card repayments listed on his credit file.
The fourth and final issue was that the valuation originally came in lower than expected.
The solution
The first solution involved speaking to the client openly about the situation to explain how these complexities could impact his chances of loan approval. With an LVR of 88%, it was quite a tricky deal.
The client was able to source some additional funds from family members. This brought the LVR down to under 85% and removed the need to show lenders evidence of genuine savings.
Next, we decided to go to Liberty to find a good lending solution at a slightly higher interest rate.
This was one of those deals with issues that kept popping up. At first, the only issue was the lack of genuine savings, which was quite easy to deal with as we had lenders such as ING and Bankwest that had suitable policies and were happy with non-genuine savings at an 88% LVR.
This was one of those deals with issues that kept popping up. At first, the only issue was the lack of genuine savings ... However, we soon found out about the outstanding debts
However, we soon found out about the outstanding debts and repayments to Fines Victoria, which was quite a unique situation. We had to contact each lender to gauge their view on it, and some would not accept an outstanding debt when lenders mortgage insurance was involved.
ING was comfortable with it, and we prepared the paperwork to submit to them; however, we did a credit check before submitting it and found out that there was a poor credit score and a history of missed repayments on the client’s credit card. As a result, we had to re-evaluate the loan strategy, and Liberty came up as the ultimate solution, given that they don’t do a comprehensive credit report or a credit score.
We also did some upfront valuations before going to Liberty, which came in low. This forced the client to renegotiate the contract with his family before we went to Liberty and did the final valuation.
The ultimate outcome was a very happy client. While the interest rate is slightly higher with Liberty, he was very keen to secure this property as he thought it was a great opportunity. The view was that there would be plenty of growth over the next two years, and he would be able to build equity into the property, allowing himself to upgrade to a bigger home in the future as well.
The plan will also be to refinance away from Liberty in a few years’ time so that he can lower his interest rate to a very competitive rate.
The takeaways
There were good lessons learnt by the client about managing his money more effectively and making sure he stayed on top of all of his debts.
The key reminder for me was to always get the privacy form signed by the client and do a credit check upfront. We put time and resources into finding a solution for the client when we didn’t have the full picture, which was a very inefficient way to go about it.
The majority of clients won’t have huge surprises on their credit files, but when they do, it can have a big impact. We’ve now amended our process to always get the privacy form and credit check done upfront.
There is also the time-old issue of borrowers who aren’t good with their money. However, there is reason to believe that this is changing, with a new age of financial literacy and education coming through. At Entourage, we are certainly focusing on this and running sessions on financial wellness and education through one of our brokers, Mikaela Patterson.
Vincent Moore
Partner and finance broker,
Entourage
