New lending paradigms for a changing society

Debt consolidation, side hustles, launching a business and other changes in borrower situations are boosting awareness of the innovative solutions available from specialist lenders

NON-TRADITIONAL lenders are adapting quickly to the social changes that are stemming from the pandemic and its aftermath. Many of the changing paradigms play into the hands of more flexible lenders. Credit challenges, more people with secondary sources of income and the growth of self-employed borrowers are some realities that non-banks are better positioned to cater to than mainstream lenders. “We have seen a real increase in self-employed [applicants] and we expect to see that number grow as the economy changes, and more and more people change their work-life balance and their style of work,” says Tony MacRae, chief commercial officer at Bluestone Home Loans. Banks don’t readily accommodate the self-employed in the initial two-to-three-year period after setting up a business. “They’re not able to meet the bank’s much stricter income verification requirements,” says MacRae.

“An emerging trend is the rise of customers with multiple income streams, including second jobs and side hustles,” says Tim Lemon, state sales manager for NSW and Queensland at MA Money. Most lenders will not lend to businesses with less than 12 months of history, but MA Money can assess 100 per cent of income for a business with just six months. “[This] enables us to offer tailored solutions to these customers,” Lemon says. Working styles are also affecting the location of income sources in a more internationalised labour marketplace. Non-banks can accommodate these borrowers, too. “With the prevalence of remote work arrangements, we have been able to help applicants who obtain their income from international sources while residing in Australia,” says Lemon.

The growing adjustment to higher rates is also tempered by the reality that any cut would soon stimulate enough economic activity to undermine the progress made so far on taming inflation. “It’s a double-edged sword, because when we get to a point where there’s a strong confidence that interest rates are going to come down, I am pretty confident that we’ll then see another surge in house prices,” says MacRae. More people would be able to enter the property market if rates were to drop. Bluestone estimates that for nearly half of customers, any decision to purchase is being affected by what interest rates are at the moment, due to their effect on the overall cost of living.

Economic stress among borrowers is also evident in the ongoing demand for debt consolidation. “As they juggle cost-of-living pressures and a range of household debts, borrowers are looking for ways to streamline their financial lives and improve cash flow, so debt consolidation is in high demand,” says Smith. The desire to reduce interest payments as much as possible isn’t surprising. Credit card early arrears remain above 2022 levels, with Equifax data showing accounts 90+ days past due up 15 per cent in the three months to December versus Q4 2022. Credit card arrears may continue to increase in the months ahead as summer splurges catch up with consumers.

Of course, economists and market observers everywhere are polishing their crystal balls for the timing of any central bank rate cut – even though that might not be soon. “We've noticed a shift toward acceptance and a sense of stability … people are more accepting of higher rates and are focusing on strategies like refinancing to secure better deals or consolidate debt,” says Lemon. The impact of the fixed-rate cliff has been minimal so far, with housing loans in 90-day arrears less than one per cent of balances outstanding at both banks and non-banks, according to the latest RBA Financial Stability Review. “This supports the argument that the economy and lending markets are heading toward a more balanced and sustainable position,” says Smith.

MA Money is a non-bank mortgage lender that specialises in residential loans for customers who require a flexible alternative that is tailored to meet their financial needs. The MA Money team is committed to exceptional service for customers and brokers, and is dedicated to continually improving their systems and assessment processes to ensure fast decision-making.

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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 borrowers that 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.

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This is not the case for non-banks, which can tap into this growing cohort. The yearly net change in business entries and exits has been in the positive over the entire pandemic period (2019–23). Likewise, there has been a steady rise in the number of people taking on side work as interest rates have climbed and economic stress levels increased.

Tim Lemon

MA Money

Industry experts

Tim Lemon is the state sales manager for MA Money, bringing over 20 years of finance industry expertise to his role. Joining in October 2023, he spearheads operations in NSW and QLD. Tim’s career is defined by his talent for finding out-of-the-box lending solutions, benefiting both brokers and their clients. His extensive experience in business development with non-bank lenders underscores his ability to navigate complex financial landscapes.

MA Money

Tim Lemon

MA Money

Tony MacRae

Bluestone Home Loans

Industry experts

MA Money

Tim Lemon

David Smith was appointed chief distribution officer in January 2024. Strategy-driven with a customer-first ethos, David is responsible for the broader distribution platforms of the Liberty Financial Group, including its business partner relationships. David brings a wealth of knowledge and expertise, having spent over 20 years in the financial services sector. David holds a Bachelor of Business (Hons) from Brunel University London and a Post Graduate Diploma of Marketing from the UK Chartered Institute of Marketing.

Liberty Financial

David Smith

A number of these changes, such as higher levels of secondary work, are partly driven by economic stress. “The primary factor that has the largest influence is the escalating cost of living. This has compelled some people to seek innovative ways to boost their income,” says Lemon. The emergence of a differently structured society is a slow and sometimes painful process. Many thought the economy was through the worst earlier in 2024 as sentiment showed signs of a recovery from near-record lows, but the March drop in the Westpac Melbourne Institute consumer sentiment index was a reality check.

Tim Lemon

MA Money

Industry experts

“A large and growing proportion of borrowers will require increasingly innovative and flexible solutions from lenders who can tailor their products and policies to fit Australia’s progressive society”

DAVID SMITH, LIBERTY

Non-banks expect the income trends among borrowers that are stemming from the pandemic and its hangover to continue, and those lenders who can anticipate and cater to the underlying social evolution will naturally win a larger share of business. “The needs and circumstances of a large and growing proportion of borrowers will require increasingly innovative and flexible solutions from lenders,” says David Smith, chief distribution officer at Liberty. “That is, lenders who can tailor their products and policies to fit Australia’s progressive society,” he says.

Bluestone research shows that 25 per cent of people now admit that they are missing payments more than a few times and five per cent regularly pay their credit card bills late. “More and more people are finding it difficult to manage debt and that’s why they’re in debt renegotiation or debt consolidation,” says MacRae. MacRae says the chatter on debt stress is broad-based. “Brokers or debt renegotiation companies, they’re seeing the same thing. They see that trend probably growing over the short to medium term [due to] the cost of living and a slower economy.”

MA Money

Tim Lemon

David Smith

Liberty Financial

David Smith

Liberty Financial

David Smith

“An emerging trend is the rise of customers with multiple income streams, including second jobs and side hustles”

TIM LEMON, MA MONEY

Growing range of income streams

Economic stress and adjusting for the long haul

Growing range of income streams

Economic stress and adjusting for the long haul

Published 29 Apr 2024

David Smith

Liberty Financial

Tony MacRae assumed the role of chief commercial officer at Bluestone in November 2023 (after joining Bluestone as their chief sales officer in August 2023) with a wealth of experience in financial services, including a decade with Westpac as CEO of RAMS and GM Third Party Distribution. He has an industry-wide reputation of successful execution of sales initiatives, driving strategic direction, building partnerships, and leading teams to strong business growth. For the last 10 years Tony has been a board member and treasurer of the Royal Flying Doctor Service south-eastern section. Tony has a Bachelor of Economics from Macquarie University.

Bluestone Home Loans

Tony MacRae

Source: ABS (Labour Account Australia, Dec 2023)

More taking on side hustles

A leading Australian non-bank lender, Liberty offers flexible solutions to help brokers support customers with greater choice and bring ideas to life. For over 26 years, Liberty has been a champion of inclusion and this value acts as a springboard for innovation. With our free-thinking approach, we’ve helped over 850,000 customers with home, business, personal, car, commercial and SMSF loans. Liberty remains the only non-bank lender with an investment-grade credit rating offering custom and prime solutions to help more people get financial.

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TONY MACRAE, BLUESTONE HOME LOANS

“More and more people are finding it difficult to manage debt and that’s why they’re in debt renegotiation or debt consolidation”

“Confidence in the property market will continue to grow, but the nagging piece is around interest rates remaining high,” MacRae. The key for lending institutions will be the ability to react quickly when the time comes and to be ready to change gears if there are any sudden reversals in borrowing conditions. “We expect an increasing level of awareness among brokers and borrowers of the innovative solutions available. Borrower situations are forever changing and that’s where the role of a specialist lender really comes into play,” says Smith.

There is no doubt that non-bank lenders are lifting their share of different sectors in the lending market. A recent report by Foresight Analytics shows that the market for Australian commercial real estate debt now stands at $447 billion, with $74 billion – or a 16 per cent share – attributed to non-bank lenders, up from just over 10 per cent in 2020. “The role of specialist lending has changed dramatically over the last two years due to the pandemic. Looking ahead, I anticipate further evolution, particularly in product expansion targeted toward expats and non-residents, addressing the growing demand within these customer segments,” says Lemon. MA Money has seen an increase in applicants from overseas seeking to refinance loans due to an expat product with a flexible cash-out option, for example. Another area is self-managed super funds (SMSFs) where non-banks are the only game in town. MA Money recently expanded its product line to include SMSFs, while Bluestone’s SMSF product started to take off in early 2023. “Over 12 months, we’ve seen that go from zero percent of our settled deals and lodgements to about 13 per cent of what we were writing [as of February 2024],” says MacRae.

Fine balance may limit incentives for rate cuts

“The other pleasing aspect is that they’re not stopping there. On average, we’re getting at least another non-SMSF deal from those brokers over that period.” Brokers play a key role in driving out-of-the-box borrowers to non-banks, which is not necessarily the case for banks. “We know speed, automation and efficiency are at the top of the priority list for traditional lenders. While this has its benefits, the linear decisions this can produce mean borrowers who don’t fit the mould may be left without the help they need. That’s where the expertise of the broker becomes even more important. Brokers hold the key to understanding who is best placed to help a borrower,” says Smith.

Some non-banks are expanding their BDM teams as a result of the demand, while new products also need to be marketed and understood though training sessions and other outreach efforts. For example, MA Money has introduced a scenario specialist to provide BDMs and brokers with swift and accurate responses to queries and scenarios. “This approach ensures that brokers receive timely assistance and access to practical solutions,” says Lemon. Flexibility is a key requirement for today’s specialist market. “We focus on providing adaptable loan solutions tailored to each customer’s unique requirements,” says Lemon. This can include casting the net quite widely with inclusive policies around comprehensive credit reports (CCR) or debt-to-income (DTI) ratios. “We may accept discharged bankruptcies from as little as one day, except Prime, and have no credit scoring, CCR or DTI requirements or restrictions.” Many specialist lenders are also now in the process of introducing tech solutions to help speed processes and improve service. Developments frequently revolve around simplification and making the experience more seamless for both broker and client. “Digitisation is going to have a real role to play in all lending, but particularly on the specialist side, where it may have been perceived as a little more difficult [to implement],” says MacRae.

The lender part of helping brokers provide these more flexible options to borrowers is making sure that brokers have the right information on hand. This is all the more important when the definition of specialist lending continues to evolve in line with social changes. “Brokers are uniquely placed to provide a diverse range of solutions for the full cross-section of new and existing borrowers. It’s important to invest the time to understand the full breadth of lending solutions available from specialist lenders,” says Smith. The message for brokers is simple – opportunities are growing in the specialist area and non-bank lenders can often help when others can’t or won’t. “[It] is a real growth avenue for brokers … you can grow your business by looking at some specialist loans if you are able to identify new, non-standard opportunities,” says MacRae. And if a broker needs help with tackling something unusual, it is readily available from teams that deal with the unusual every day. “We often surprise brokers with our solutions. What may appear to be a complex deal on the surface might not be so complex to us,” says Smith.

Importance of the broker in a sensitive market

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Tony MacRae

Bluestone Home Loans

Tony MacRae

Bluestone Home Loans

Tony MacRae

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1,125,000

1,050,000

975,000

Sep 2022

Dec 2022

Mar 2023

Jun 2023

Sep 2023

Dec 2023

997,200

1,022,800

1,061,100

1,067,100

1,083,900

1,101,700

Number of people with secondary jobs

Annual change

+7.0%

+8.3%

+9.9%

+11.2%

+11.8%

+11.3%

Consumer sentiment drops again

Source: Westpac Melbourne Institute consumer sentiment index

February

84.4

March

Source: Westpac Melbourne Institute consumer sentiment index

March

84.4

February

Consumer sentiment drops again