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Keep the big picture in mind when assessing your lending options

Given the current, competitive lending environment we find ourselves in today, I felt it was timely to review the options available to property investors when it comes to securing that all important property investment finance.

All too often, we forget about any other potential source of credit because we’re ‘taken in’ by the marketing monopoly held by the Big Four banks.

But there are alternatives…

Each type of lender comes with different associated pros and cons, and in order to make sure you secure the best deal possible, it’s important that you weigh them all up on their overall merits and what they can offer you, not simply the interest rates they charge.

Balance sheet lenders provide more flexibility in the way that they approve loans, because they’re the sole decision makers. They can either approve or decline the loan off their own back and are not beholden to a mortgage insurer.

Often you hear stories from brokers who assure their clients that they received initial approval for a loan application from the lender who was keen to give them the money, but the mortgage insurer just wouldn’t come to the party.

I know about this first hand, after being involved in a transaction on behalf of a client who didn’t fit the mortgage insurer’s policies. The loan was declined. They have the attitude that it either fits inside the square or it doesn’t and are very strict.

So the benefit of using a balance sheet lender is that they have the sole discretion over what they approve and what they don’t.

Lenders that have a direct relationship with mortgage insurers can actually have more than one insurer they work with, so if one mortgage insurer declines a loan they can approach the next one and try to get the application approved through them.

This type of direct lender relationship can be very beneficial when mortgage insurers enhance their products or relax their credit standards.

Larger lenders can obviously offer a more bundled banking product to their clients, such as professional packages.

Should you wish to negotiate a free banking and transaction account, a lower rate on your mortgage, a free credit card and perhaps a financial planner, the majors are geared to manage such requests.

If you deal with a smaller lender, you won’t necessarily have access to such a broad suite of options.

Mortgage managers who work within a niche sector of the market can be of benefit to some borrowers.

If you’re a medical practitioner for instance, and want more flexible credit assessment with less red tape, you might consider a mortgage manager because they can offer that extra flexibility.

Credit unions or industry aligned lenders can be worthwhile for people who like to feel as though they’re part of a family or smaller more personal business, rather than simply being another faceless number like any other one of the 10 million customers that get lost in the big banks.

The key factors to remember when working through your financing options are, as always,, your own personal circumstances and property investment goals, strategy and structure.

Rarely will a “one size fits all” approach be appropriate or effective. In fact for property investors, using a combination of different types of lenders can often yield the best results as it evens out all the financing pros and cons at a portfolio level.

Always keep the big picture in mind when planning your property investment finance.

If you would like more information on how you can profit from investing in Australia’s residential real estate sector by establishing clear investment strategies and structures, contact us or subscribe to receive regular post updates and industry insights.

Stuart Wemyss is a chartered accountant and founder of Property Tycoon Finance. Email: wealth@propertytycoonfinance.com.au

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