The property market is booming. And with lots of liquidity in the market and new property players exuberant because of price rises, brokers are finding it hard to compete due to lenders knocking on clients’ doors. Broking leaders talked about the risk brokers face due to the increase in private lenders.
“I do fear that with money-chasing clients, without [them] being properly advised, combined with a strong property market, this could cause a deterioration of credit standards in pockets of the market, in particular those with a limited track record of operating in the space who may be capitalising on the high level of liquidity chasing yield in the system,” said Cory Bannister, La Trobe Financial’s senior vice president and chief lending officer. “It’s important for everyone that lenders and brokers maintain a prudent and disciplined approach to credit in specialist areas of lending, which construction and development finance forms part of. Concerningly, there are stories circulating that suggest there are deals being done where the risk-return profile appears to be out of balance by entities that are backed by investors chasing a yield that’s better than cash.”
Bannister said that while this may work out fine when markets are good, it’s when they “turn” that could raise concerns about whether those entities had sufficient liquidity to complete projects, potentially placing brokers, aggregators, and lenders at risk.
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Domenic Lo Surdo, Stamford Capital joint managing director, said brokers had a crucial role to play in this discussion.
“Where there’s any doubt whether that lender is going to stump up with the third progress call or the 10th progress call, those lenders shouldn’t be engaged with,” he said. “There's definitely been a deterioration in credit standards. I think to some extent, the brokers have to take some responsibility for that because it's our job to represent clients and to push those limits.”
George Karam, BF Money managing director, said lenders needed to be just as diligent about which brokers they dealt with.
“Who’s bringing that deal to the table, and are they going to be able to rescue that deal if there’s not as much liquidity in the market?” Karam said.
Matthew Johnson, Simplicity Loans & Advisory managing director, said brokers could provide value to clients by pointing them to the right lenders.
“I guarantee you all the brokers have lost a bit of skin off their elbows and knees at different times, dealing with lenders who haven't delivered to whatever extent that might be ... off the back of that experience it then allows you to know the ones to avoid and the ones to deal with,” Johnson said.
