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Conditions ripe for non-standard lending

Non-banks like Bluestone Home Loans are stepping in to offer non-standard solutions where traditional lenders fall short in the post-pandemic economic landscape, with flexible thinking that reflects the needs of modern borrowers

James Candrick

Yellow Brick Road

Industry experts

Gerard Hansen

FinVu

Mark Haron

Connective

Tony MacRae

Bluestone Home Loans

James Candrick, branch principal and mortgage broker at Yellow Brick Road Balmain, has over 30 years of experience in banking and finance, including roles at Westpac, Virgin Money, Unilever and his own business. He holds a Bachelor’s Degree in Economics and a Certificate IV in Mortgage Broking. Candrick and his team are dedicated to guiding clients to financial success through long-term relationships, specialising in helping self-employed clients and busy professionals. Candrick enjoys Balmain’s culture, golfing and swimming. He offers expert advice on home, residential and business loans.

Yellow Brick Road

James Candrick

Gerard Hansen has worked in the finance industry for over 20 years, starting out at a major bank and setting up his own business 12 years ago. FinVu represents the combination of Hansen’s passion for providing mortgage solutions and tailored financial advice/risk protection. With a strong business background and a career in finance, he has a clear understanding of how the lending sector works. As principal at FinVu, Hansen believes it is essential that his clients feel completely at ease with their decisions, and he takes the time to explain each step of the loan process. Hansen adopts a personal approach to the mortgage broking business.

FinVu

Gerard Hansen

Mark Haron was appointed executive director of Connective in 2006 after serving as CEO of FAST. He has extensive knowledge of mortgage broking and lending with expertise covering operations, sales and relationship management. As deputy chair of the Combined Industry Forum, Haron guided reforms to enhance customer outcomes. His vision shapes Connective’s direction with brokers and lenders. Haron has driven Connective’s growth by building strong lender relationships and advocating for industry reforms, significantly improving customer outcomes.

Connective

Mark Haron

Tony MacRae assumed the role of chief commercial officer at Bluestone in November 2023, after joining the company as its chief sales officer in August 2023. He has a wealth of experience in financial services, including a decade at Westpac Group as CEO of RAMS and GM third party distribution. MacRae has an industrywide reputation for successful execution of sales initiatives, driving strategic direction, building partnerships and leading teams to strong business growth. He leads Bluestone’s efforts to ensure brokers and partners are best positioned to help more customers. For the last 10 years, MacRae has been a board member and treasurer of the Royal Flying Doctor Service South Eastern Section. He has a Bachelor of Economics from Macquarie University.

Bluestone Home Loans

Tony MacRae

Chris Mushan is managing director at ChapterTwo Australia and specialises in debt mediation, negotiation and mortgage broking. ChapterTwo helps clients avoid insolvency by negotiating with creditors and providing alternative lending solutions. Mushan has extensive experience in finance and has operated ChapterTwo since 2015. He holds a Bachelor of Commerce in Finance from the University of Notre Dame Australia and a Graduate Certificate in Business Law from Southern Cross University.

ChapterTwo Australia

Chris Mushan

“More people are changing the way they work; the economy is shifting. We are going through interesting economic times, and people are slipping through the cracks”

TONY MACRAE, BLUESTONE HOME LOANS

AS THE winds of change continue to buffet the Australian economy in new ways post-pandemic, lending markets are gradually tacking towards an environment in which the non-standard loan and borrower are more ascendant. Those with their ears to the ground are observing more self-employed people making life-altering decisions after the systemic shock of COVID-19. Economic stress is also leading to a higher number of people with imperfect credit records. These factors, alongside the increasingly conservative lending stances of mainstream banks, are contributing to a natural evolution of markets that favour non-vanilla lending. Two senior managers at non-bank Bluestone Home Loans recently met at Café Sydney restaurant with a group of aggregators, mortgage brokers and financial services experts to discuss non-standard home loan solutions and related borrower markets with Australian Broker.

“Most of the clients that come to us are stressed, and they are looking for a solution. More often than not, they know that they’re non-standard”

CHRIS mushan, chaptertwo australia

“At the moment, with what’s going on in the market, we’re starting to see more and more customers moving into that non-standard lending”

MARK HARON, CONNECTIVE

Understandably, it can be a little frustrating to run into a brick wall simply because a few criteria have bled over the edges. The world isn’t black and white, and there are as many borrower situations as there are shades of grey. ChapterTwo Australia specialises in debt mediation, negotiation and mortgage broking, and director Chris Mushan deals with such customers regularly. While standard customers’ main interest is shopping for a lower rate, non-standard customers typically need something tweaked to make a deal work. “Non-standard means that [a customer] needs to have some workability in the deal, and you need to find a solution,” Mushan said. “And the banks won’t provide that – most of the time it’s because of a life event, or because they’ve fallen into too much debt.”

“Customers that used to be banking on two rate cuts by the end of the year are not banking on it any more”

GERARD HANSEN, finvu

“As soon as we start dealing with a mainstream bank, and you have to start explaining and go around the loop – that can take three or four days each time there’s a question. Before you know it, you’ve lost a month so easily,” said James Candrick, branch principal and mortgage broker at boutique aggregator Yellow Brick Road in Balmain. But non-banks understand the realities of the many shades of grey that make up the non-standard lending market, and if they don’t, then they are willing to learn. “People like Bluestone will take the time to listen to the customer’s story,” said Candrick. “There’s usually a life event involved … Usually, we can explain the pathway that is going to help get the customer get back to where they need to be, and we can get it done much more quickly than with a bank.” One of the main issues brokers have with banks is that the result can end up being a rejection, even after jumping through a number of hoops. “Brokers are quite fed up with going through that bank process. It takes so long and then letting the client down … they just can’t keep doing that,” Candrick said.

More people are knocking on the door and looking for answers as the economic stress continues. “Within the last six months, we’ve never had more people say how unaffordable their life has become,” said Gerard Hansen, principal at financial services firm FinVu. The prospects for rate relief any time soon are also lower than a few months ago as predictions of bringing prices under control were exorcised by higher-than-expected March quarter inflation and recent inflation-fighting rhetoric from the Reserve Bank Australia.

“We’re seeing this model grow, and more and more customers are falling into it. We actually think it’s a great space to be in because it really is about finding a solution, and answers for customers,” said Tony MacRae, chief commercial officer at Bluestone. “More people are changing the way they work; the economy is shifting. We are going through interesting economic times, and people are slipping through the cracks.” Non-banks such as Bluestone see their role as providing a net to catch those who don’t meet the narrow criteria that traditional banks prefer. “[We cater to] customers that banks won’t look after or just make it too hard or too complex for them,” MacRae said.

The conditions are in place for non-standard borrowers to increase in number as inflation drags and the cost of living bites. As people have struggled to make their finances work, many have turned to schemes such as Buy Now Pay Later (BNPL), Zip or Afterpay. “These are not credit-checked, but people don’t realise [that using them] will affect their mortgage application,” said Westgarth.

The sentiment was shared among the group. Mark Haron, executive director at aggregator Connective, sees increasingly rigid bank lending criteria as one reason for the stronger value proposition of non-standard lending solutions. “The banks have probably walked further away from non-standard lending because of APRA, regulators, the capital requirements that they’re now contending with … it’s just too hard for them to put it on the balance sheet and to fund it,” he said. “We’ve seen a significant uplift in terms of activity going through brokers, because a lot of it’s about education and brokers understanding that there are still deals to be done … at the moment with what’s going on in the market, we’re starting to see more and more customers moving into that non-standard lending because the major banks are more focused on that standard [type of customer].”

A number of banks try to walk the non-standard walk. “But banks typically like the simple [customers],” said Robert Westgarth, head of originations at Bluestone. “Anything other than that, I think, falls into the non-standard space … banks try to rebrand or try to set themselves up as a non-standard lender, but they can’t deliver the service to that type of customer.” This is borne out by the broker experience. Many banks take a lot of time to process things, and place emphasis on areas that may not be as relevant to creditworthiness as some think.

Read on

When a mainstream bank loan is rejected for such a reason, many turn to non-banks as an alternative. “Most of the clients that come to us are stressed, and they are looking for a solution. More often than not, they know that they’re non-standard, and know that they’re in a pickle and that cash flow is tight,” said Mushan. Take those with secondary sources of income, for example. People with more than one source of income have increased as the economy sputters under higher interest rates. But banks have trouble getting their heads around anything that is not cut and dried.

“Customers that used to be banking on two rate cuts by the end of the year are not banking on it any more,” said Hansen. One result is a realisation among those with a heavy financial burden that they may need to consolidate and restructure their debts to last the distance. This will drive demand for knowledgeable advice and services. Haron believes this will be a big opportunity for brokers around debt consolidation. "We haven't really seen it yet, but the cost of living pressure means that people are relying on their credit cards a lot more or relying on other debt forms," he said. "And those interest rates are significantly higher than what mortgage rates are."

Established in 2000, Bluestone Home Loans is one of Australia and New Zealand’s leading non-standard mortgage lenders, backed by Cerberus Capital Management since 2018. Bluestone Home Loans specialises in providing home loans to the borrowers the banks often overlook and has helped over 50,000 borrowers buy, refinance or invest in property. Currently only accessible via a broker, Bluestone aims to be the go-to lender for brokers who have complex customers, making the application process simple, with fast assessment turnaround times.

Find out more

“More people are changing the way they work; the economy is shifting. We are going through interesting economic times, and people are slipping through the cracks”

TONY MACRAE, BLUESTONE HOME LOANS

Conditions ripe for non-standard lending

Read on

Industry experts

Bluestone Home Loans

Tony MacRae

Robert Westgarth joined Bluestone in December 2023 as head of originations. He has over 35 years of experience in the finance industry, having worked in senior roles at various domestic and global institutions as well as a number of startups and turnaround companies. His background extends to all areas of credit and risk management, covering origination, loan management, collection and policy formulation. Westgarth has held several board positions at both public and private companies and has a Bachelor of Economics from Macquarie University.

Bluestone Home Loans

Robert Westgarth

FinVu

Gerard Hansen

Yellow Brick Road

James Candrick

Conditions ripe for non-standard lending

Read on

Industry experts

Yellow Brick Road

James Candrick

FinVu

Gerard Hansen

Bluestone Home Loans

Robert Westgarth

Bluestone Home Loans

Tony MacRae

A market with more customers

Published 24 Jun 2024

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Rigid banks versus lenders who are ready to listen

More factors pushing customers towards financial advice

MORE AUSTRALIANS TAKING ON SIDE HUSTLES

800,000

900,000

1,100,000

1,000,000

997,200

1,022,800

1,061,100

1,067,100

1,083,900

1,101,700

Source: ABS (Labour Account Australia, Dec 2023)

These customers will need help towards the end of this year and the beginning of 2025, Haron said. “That’s a big opportunity for brokers to be talking to their clients, coaching them and making sure they know and understand that if they have accumulated a lot of other personal debt, [they need] to talk to their broker about a debt consolidation process.” Debt restructuring used to be something of a dirty word pre-pandemic, but this is no longer true – another likely tailwind for brokers.

Westgarth said, “If you go back five years, debt consolidation seemed to have a nasty stigma for people, whereas I think in today’s discussions people accept and understand that … [in terms of] financial wellbeing, it’s just something that has happened and they need to sort it out. I think people are more forthcoming to brokers and lenders about it.” Candrick sees opportunity among all kinds of clients to manage their finances better. “When it comes to debt consolidation, it’s not just a concept for people that are doing it tough,” he said. “I’m sometimes amazed when I see high-income earners having a couple of big car loans and credit cards [who are spending] about $3,000 to $4,000 a month just on two cars – that’s a lot of mortgage that you could swap out with and pay off faster.” Brokers who can spot these inefficiencies stand to benefit. “There is the opportunity to help people in all parts of the market,” said Candrick.

Simplifying the lending and approval process

Bluestone has deliberately made its application criteria and processes simpler, in contrast to processes at the regular banks. “What we’re trying to do is simplify what we do and make sure that we get one or two simple forms of verification and then be able to move forward on that,” said MacRae. This is a major plus for brokers. “Even if the customer isn’t ready today, they can be in a month’s time, given that the statements required for a loan to be assessed at Bluestone is only one month’s worth,” Mushan said. “You can get a customer in a really good position in a month. “Most other lenders are looking at comprehensive reporting or three months of statements. It’s much easier for a customer to get into a position where they're going to be a prime deal at a non-standard [lender] than at any other lender given how much documentation is required.”

MORE AUSTRALIANS USING CREDIT CARDS

In March quarter 2024:

credit card applications increased

13.2% year-on-year

credit card limits were up

29% year-on-year

Source: Equifax Quarterly Consumer Credit Insights: March 2024

MacRae said Bluestone aims to win in three areas – relationship, service and product. “We’ve really lifted our game on relationships.” Serving is mainly about speed. “The service front is ensuring consistency and really good turnaround times,” MacRae said. “We’ve seen those shrink in a positive sense over the last six months; now, most deals will be conditionally approved on the same day that they come in, and within about four days they are unconditionally approved.” Another key strength is making sure brokers know where they stand when it comes to readability around approval. “One of the scariest things for me if I send a deal to a new lender is whether the decision will change depending on which credit person I’m dealing with,” Candrick said. “Inconsistency of credit decisions is probably my biggest nightmare.” Bluestone is aware of this problem and prides itself on being able to say that a broker will get a consistent decision regardless of who assesses the application. “Any decision should be consistent across any of our underwriters ... that comes down to training, coaching and mentoring across the team,” said Westgarth. Making the lending process simpler puts Bluestone and the brokers who use its products in a strong position to help the growing number of people who are underserved by traditional lenders.

Role of the broker in times of economic stress

As the respective roles of banks and non-banks changes in the post-pandemic economy, so, too, does the role of the broker. “People like Bluestone actually see the broker as the replacement to the old-fashioned bank relationship manager,” said Candrick. “We have a lot of information about the client, and we can help portray the client in the context that helps the lender approve the loan. “Our biggest role is to know the client so that when the lender asks us a question, we’re pretty much going to know the answer.”

“Our biggest role is to know the client so that when the lender asks us a question, we’re pretty much going to know the answer”

James candrick, Yellow brick road

Brokers will often have long-standing relationships with their clients that span years. These relationships go well beyond simply asking them for their latest payslips. “Quite often you’re structuring that transaction as part of something that’s happening over a period of time,” said Haron. “In some cases, non-standard lending is very much part of what could be a short-term, two-year component of a longer way to help that customer do other things, such as increase their property portfolio.” Brokers also need to manage the expectations of their clients. “It’s about keeping their expectations of what the solution is going to look like and how long it’s going to take and holding their hand through it, said Mushan. “They feel like they’re on their own a lot of the time. Using a non-standard lender that will be quick helps to relieve some of the pain that they may be going through. But the main thing is just letting them know that you’re on their side and that you’re going to find a solution that will assist them in the long run.” Many clients turning to non-banks will have experienced rejection at other lenders and may be losing hope. “It’s built up more stress and more pressure on them … so you can become a bit more like a financial counsellor,” said Haron. They may have received poor service that put them in a weaker position vis-à-vis mainstream lenders. Hansen recalled one client who had had their credit score reduced by over 300 points due to multiple credit enquiries, and another whose score went from 890 down to 330 after just a single enquiry. In cases such as these, a bank will generally not come to the party. “So it’s a real blessing to have [a non-standard lender] look beyond that and see what applies in terms of both the client’s savings and income,” he said. New business owners, too, are constantly caught out because they don’t have a long enough history of solid tax returns. “You could have just started your own business and not have done two years’ worth of tax returns, but that’s no reflection on how successful you are now,” said Haron.

From left: Gerard Hansen, FinVu; Robert Westgarth, Bluestone; Tony MacRae, Bluestone; James Candrick, Yellow Brick Road; and Chris Muchan, ChapterTwo Australia

“There’ll be continued growth in the market ... with the emergence of all the unsecured lenders, credit cards, BNPL. Getting it back to being a simple financing agreement for the customer will be important”

ROBERT WESTGRATH, BLUESTONE HOME LOANS

“Even some very successful business owners that we’ve dealt with haven’t been able to get bank funding, which just doesn’t make any sense. What non-standard lenders do well is give business owners another chance, or an easier path to finance.” With so many worthy people slipping through the cracks due to a lack of granular understanding around a person’s actual ability to repay a loan, the prospects for non-standard lending look bright – especially as the economy creaks and borrowers find themselves more willing to tap into funding sources that they may not have used in the past. “I think there’ll be continued growth in the market,” said Westgarth. “And I think with the emergence of all the unsecured lenders, credit cards, BNPL, that getting it back to being a simple financing arrangement for the customer will be important.” Simplicity is the secret sauce for Bluestone and something that is easier said than done. “The challenge that we have is keeping it really simple and then applying that simplicity into how we do things,” said MacRae. “We want to be not only the solution finder but also the easiest to deal with in the market.”

Sep 2022

Dec 2022

Mar 2023

Jun 2023

Sep 2023

Dec 2023

+16.2%

+7.0%

+10.5%

+6.4%

+7.4%

+6.8%

Bluestone Home Loans

Robert Westgarth

No. of people with secondary jobs

Annual change

Quarter ending

In Partnership with

Connective

Mark Haron

ChapterTwo Australia

Chris Mushan

Connective

Mark Haron

ChapterTwo Australia

Chris Mushan