Investment boom opens new gap in lending

Residential investment lending soared over the 12 months to May. Property investment loans accounted for 40 per cent of all AFG mortgages sold in May this year, up from 36.5 per cent in May 2013, according to the AFG Mortgage Index.

But while vanilla lending for investors is booming, funding gaps are opening up in other sectors of the investment market.

RedZed managing director Evan Dwyer said one of the “gaping holes in the market” at the moment is financing for small residential developers.

“Those guys who are specialists at doing two dwellings on one block – they can’t get finance at the moment,” Mr Dwyer told Mortgage Business.

“There are still gaps that just aren’t being filled,” he said.

While competition heats up in the major bank-dominated prime mortgage space, Mr Dwyer said he intentionally chose not to compete in a market of “commodities”.

“Prime mortgages are commodities, and generally the person who wins in the commodities game is the person with the lowest cost of production,” he said.

“That is why I don’t compete in the prime space against banks – they will win that battle.”

Outside of prime mortgages, borrowers with more complex needs are finding it increasingly difficult to secure finance as the banks focus on core residential home lending, Mr Dwyer said.

“Those people are now going to brokers, not to their banks,” he said, adding that brokers are identifying the complex needs of borrowers who require more specialist products.

“I want to make sure I have that commercial mortgage sitting there so that when that broker gets that conversation going he knows he can send that particular deal in its entirety to me.”

Mr Dwyer said that the industry consistently treats commercial loans as something different to residential loans; while the products may vary, the demand for them all comes from the same customer, he said.

“None of us actually realise this, but it’s the same borrower,” he said.

“If you think about the person asking for the money, I don’t know why you would treat that person differently just because they gave you commercial security or residential security.”

By putting people before product, Mr Dwyer said his company has successfully expanded into the small-tier commercial space.