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The rise and rise of non-bank lenders
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Residential real estate underpins Australia’s wealth with $281.1 billion in sales per annum, and $6.6 trillion in total assets as at 31 July, 2016. Over the past 12 months, the market has maintained momentum and Moody’s Analytics expects this to continue, predicting that values nationwide will rise 6% this year and 4.1% in 2017.[1]
The rise and rise of non-bank lenders
Despite current market strength, in 2015, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investment Commission (ASIC) imposed tighter regulatory requirements in their spheres of responsibility aimed at limiting growth in investment lending and tightening loan to valuation ratio prerequisites for bank lenders.
These new requirements on the banking industry are not temporary; they represent a permanent change to bank lending policies and have ensured that, over the past ten months, major Australian banks have begun operating with a significantly reduced appetite and much tighter lending parameters.
Perhaps the most restrictive of all the new lending parameters is the banks’ requirement to hold 25% of funds against their mortgage book. Anecdotal evidence also suggests that developers are being required to cover 100% of the debt with pre-sales contracts. While this is currently not proving a barrier to larger developers who have substantial marketing budgets to cover the increased time and commissions required to secure sales prior to construction, this is a significant stumbling block for smaller projects.
Before this increased oversight by ASIC and APRA, the major banks were largely unchallenged in the construction finance sector. With the banks now limiting their exposure to the industry, mortgage trusts, like the Trilogy Monthly Income Trust, are experiencing a period of growth as experienced developers look for alternative sources of funding.
Tighter lending requirements are not the only reason property developers are seeking non-bank finance. The speed and agility of non-bank financiers, like the Trilogy Monthly Income Trust, are also attractive.
Agility does not mean less oversight or less stringent lending criteria. All loans provided by the Trust must meet specific requirements, including:
- Loan terms from 6- 24 months
- Secured by registered first mortgages with full documentation
- Maximum LVR 70% of ‘as if complete’ valuation
- Value established by an independent, appropriately qualified valuer
- Acceptable property risk outlook for sector and location
- No related party lending
- Borrowers must demonstrate their ability to meet loan commitments
- Maximum loan size $5 million
- Strict due diligence process, including independent valuation and credit checks
- Adequate insurance musty be held over the property
- All loans must be approved by the lending committee. To be approved they must demonstrate an ability to service the interest commitment for the full term of the loan (except in the case of construction loans, where the interest component is retained by Trilogy Funds).
The performance of all loans provided via the Trilogy Monthly Income Trust is carefully monitored by Trilogy Funds to ensure adherence to on-going reporting requirements and specific loan covenants. The progress of all loans is monitored via the draw-down process and through regular contact with the borrower. This is an actively managed process to ensure that all projects are being run efficiently and in accordance with the lending criteria.
Further details on the types of loans funded by the Trilogy Monthly Income Trust and a borrower testimonial is located on our website at www.trilogyfunds.com.au/services/private-lending.
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