Second-tier/non-bank lending is not for the faint-hearted. Rules differ widely from traditional property financing. Still, with the banks taking a tough
stance on property lending these days, it pays to open up your mind to second-tier lenders to get yourself moving forward.
I have been asked to share some not-so-obvious tips with first-time borrowers in the second-tier market:
Comparing to bank pricing is a fool’s errand
We are talking about 🍎and 🍊.
Second-tier lenders exist because they offer products a traditional bank can’t. They are not regulated like a bank (e.g. before the LVR restrictions were
lifted, the 2T lenders were lending up to 80% on IPs) and they lend on different criteria from a bank. So if you find yourself at the low equity end
or simply do not meet banks’ criteria, you could possibly get your dead funded by a 2T lender. In that case, it makes no sense to compare the 2T’s
rates with that of the banks seeing that you are dealing with an entirely different product.
A more helpful comparison is to look at the opportunity cost: are you better off going ahead with the deal using the higher 2T rates or are you better
off missing the entire deal altogether.
Don’t, for the love of God, go direct
This is where serious investors separate from the pack.
Navigating all the different lending criteria across the bank and 2T space is near impossible unless you are prepared to live and breathe lending criteria
all day long. Every lender is vying for a competitive edge in these strange times by offering something different. At the time of writing, 2T pricing
range from the mid-3% right up to the high...
