Investor lending maintained its strength throughout 2014, with the latest figures from the Reserve Bank of Australia revealing a 9.7 per cent surge in investor lending in the 12 months to November.
The growth in investor loans – which account for half of all mortgages written – has led APRA to target banks that have increased their investor lending by more than 10 per cent over 12 months.
While APRA said this does not necessarily indicate wrongdoing or warrant any action, it did state that investor growth above 10 per cent would be “an important risk indicator for APRA supervisors in considering the need for further action”.
However, non-bank specialist lenders that are not governed by the prudential regulator have been seizing the opportunity to help out investors at a time when mortgages of this kind are being closely monitored.
“Investors tend to chase maximum borrowing power,” Pepper Australia director of sales and distribution Mario Rehayem told Mortgage Business.
“We have a lot of very affluent clients who have reached their maximum capacity at the mortgage insurers,” Mr Rehayem said.
“So they come to us because we have no affiliation with the mortgage insurers."
In addition, Pepper assesses the rental income of a borrower’s investment properties and has alternative income verification methods, which more 'mainstream' lenders generally do not permit.
“So we allow more types of income as part of serviceability,” Mr Rehayem said. “We take 100 per cent rental, we do negative gearing. So we are no different to a lot of banks that are known to investors.
“So imagine that, then add a few more components.”
These include more flexible serviceability requirements, zero lender's mortgage insurance (LMI) and no credit scoring.
Specialist lenders have traditionally been known for helping clients who are credit impaired, but Mr Rehayem admitted there many affluent investors in this position.
“What we do at Pepper is take on a client knowing what their risk component is,” he said.
“We take on their past behavioural problems or life cycles and events and look at what we are going to do with them, moving forward.
“Because we have been in business long enough, we understand where to play in the market – who to lend money to and who not to.
“There are some lenders out there who take on higher risk than us, but we know for a fact that that is not an area we want to play in purely because it ends up being a bad position and a bad experience for everyone.
“If a client cannot afford a loan, they can’t afford a loan.”
Another significant segment for specialist lenders like Pepper is self-employed borrowers.
“Just because you are self-employed doesn’t mean you can’t be an investor,” Mr Rehayem said.
“Just because you have been in business just shy of 24 months and can’t produce tax returns doesn’t mean you cannot be an investor."