A mortgage broker has secured a home equity loan for a client after being rejected by multiple traditional lenders because of payday loans marked on her credit report.
The broker, Raj Ladher (pictured above), senior mortgage and financial consultant at Equilibria Finance, said with traditional lenders becoming more stringent, it was time for brokers to open up their panel and consider the non-bank market.
“I don’t own a ‘too hard basket’ and neither do many other brokers I know,” Ladher said. “Every client is given the time of day, which is why brokers are writing around 70% of loans in Australia.”
“Having a strong understanding of bank policy and keeping up to date with this allows brokers to successfully get more applications approved all within the best interests of the clients and lending responsibly.”
The client, who wished to remain anonymous, had recently gone through a medical episode and was moving in with family for support. She wanted to hold onto her home and rent it out, but she needed to release some equity to complete some cosmetic home improvements.
Ladher said that the client's payday loans posed a significant challenge.
“Once we checked the client’s credit report, we could see that the client had some payday loans as credit enquiries, however the client had a strong credit score without any missed or late payments on any current or previous debts,” Ladher said.
“The applicant also had a strong employment history, strong borrowing capacity and a strong equity position in her home. We spoke with the client about the payday loans and was advised that she took these out to cover some unexpected expenses and didn’t think they would cause an issue.”
The initial strategy for the team at Equilibria Finance was to run the client’s circumstances of the payday loans on her credit report through with the credit teams of traditional lenders offering favourable interest rates.
However, with traditional lenders taking on less risk amid rising rates and higher levels of refinancing, the team was unable to secure the loan.
“Payday loans are often seen as a red flag by lenders,” Ladher said. “They suggest that the borrower may be struggling financially.”
“Although we explained the client circumstances at length and provided mitigating strengths of the application, we were unsuccessful, so we had to look at a lender who thinks outside the square and not bound by black and white policy.”
The tight loan market has revealed an opportunity for non-bank lenders to bridge the gap and help customers with riskier profiles.
Realising this trend, Ladher and the team turned to the non-bank space for help.
“We used the lender portal which allows us to build the scenario and complete a credit check in which returns an indicative interest rate, fees, and charges,” he said.
“Fortunately, the rate was still competitive in the marketplace and less than what she was on with her lender at the time, so the client was more than happy to proceed.”
With the main roadblock being the payday lenders on her credit file, Ladher said having access to non-conforming lenders was the hero in this scenario.
“My aggregator provides me access to 58 residential lenders providing me with more chances of helping my clients.”
While Ladher said it could be a challenge at the best of times, keeping “in the know of all these lender policies and great relationships with the lender BDMs is a strength for all brokers”.
“Without this, we also would have had to advise the client that we cannot help, and the client would have had to sell her home which would have been a major setback.”
For the customer’s part, she said she was “impressed” with the professionalism and the successful result despite being under “difficult circumstances”.
“Where other bank staff would judge, they didn’t, they always came from a place of positivity and had confidence that a successful outcome was possible, and they delivered. Would recommend and use again,” the customer said.
With 17 years in the broking industry, Ladher said he has come across many scenarios where he needed to take extra time to understand the client’s circumstances and requirements.
“Clients shouldn’t be put into a box should they have out of the ordinary circumstances or requirements,” he said.
“Our role as an intermediary is to match clients’ requirements to bank policy and appetite, which many times may mean requesting an exception to policy with mitigating strengths.”
