Increase in private lending as banks tighten

A property adviser has seen more and more borrowers heading to private lenders over the last ten months, despite higher interest rates.

Zaki Ameer, founder of Dream Design Property (DDP), said tightened lending from the banks has caused a fourth lending tier to open up particularly for borrowers looking to build.

DDP helps investors find and buy property and includes its own finance broker arm to help secure finance.

Ameer said factors like APRA’s cap on interest-only loans and the Royal Commission had slowed lending down last year. He said he did not expect anything to change now that APRA has lifted its cap, because banks were still being cautious.

Working with investors looking for a construction loan or other finance to build property, Ameer said they have seen a rise in approvals from private lenders where banks would have said no.

He added, “It really applies not to an individual investor, but more for at minimum someone who’s looking to build something. Whether it be to build a townhouse or build a block of units or construction loans where banks have pulled back in lending for off-plan projects and such.

“The interest rates, where normally they could have been 5% or 6%, would probably be 10% in this area, but the approval is far quicker and easier.”

The property developer said brokers needed to be aware of which lenders were sticking with APRA’s 30% threshold and which had removed it to help their customers find interest-only loans.

He said, “A mortgage broker might be dealing with 30 lenders on average and they need to get up to date on which banks have removed the restrictions on interest only loans.

“What I’ve understood is that although APRA has removed it, major banks have not removed the cap themselves, they’re still assessing it in the same way.

“They need to speak to their BDM or representative in their institution to find out has the cap been removed and is it easier? Find the one that has removed the cap or will be more favourable to an interest-only loan, which usually works for the second or third tier of lenders as opposed to the major banks.”