Can’t get finance from the big 4? - There are alternatives: 3 Tiers Of Lending

Dilleen Property Group 2022

In total there are roughly 125 financial institutions that investors and home owners can choose from. These lenders can be broken up into three different categories. These include: Tier 1, 2 and 3.

First Tier Lenders

First tier lenders are the most common known lenders, and they are collectively labelled as the Big 4 banks.

These include:

1.       ANZ

2.       Commonwealth

3.       Westpac

4.       NAB

These four lenders will give you a good mix of policy and rates. When building a property investment portfolio, most investors will start out with the Big 4 banks. These banks are more established and often many Australian’s use these banks for their everyday lending.

Second Tier Lenders

Second tier lenders are good for investors who don’t necessarily meet the standard bank lending policy. They often have quite a niche policy, and have less risk associated with them. The rates for second tier lenders can also be slightly cheaper.

An example of a second tier lender with a niche policy is Members Equity (ME Bank). A niche policy of Members Equity is that you don’t have to declare investment property holding costs. With the Big 4 banks they will generally need a holding cost of around $200-$300 per month added onto your investment assets. If you have got four investment properties with the Big 4 banks and you’re declaring $300 in investment holding costs per property, that’s $1,200 that you’ll have to add on to your serviceability calculator. Therefore, this will be limiting your serviceability and it will be harder to obtain finance.

If you use a lender like Members Equity, they do not do this. This means that you can borrow more money with them, generally speaking. If you are building your property portfolio, you may use a lender like Members Equity to purchase property 5-6 because you can get a little bit more serviceability from them due to not declaring investment property holding costs.

Third Tier Lenders

A third tier lender has the ability to consider unique variables that may arise throughout your property investment journey. These lenders often require less paperwork and loans can get approved quicker. Further to this, a tier 3 lender may be chosen due to LVR limits, risk tolerance and can be good for those investors looking to obtain interest-only loans for a short-period of time.

An example of a third tier lender is Pepper Money. They will often work with most scenarios, no matter how complicated it may be. Due to their flexibility they do charge a premium price. If you have bad credit or you do not fit the policy of the first tier and second tier lenders, this lender may be a good option for your scenario.

If you would like to chat to a mortgage broker about your current scenario and goals, please fell free to contact Justin Picker from Picker Financial Solutions at justin@pickerfs.com.

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.