The rise of the mortgage adviser
Total Property - Issue 8 2017
Commercial Property Investor, purchasers and developers are increasingly seeking out the services of mortgage advisers as bank funding in New Zealand becomes more difficult to secure.
The retail banks have changed their lending criteria due to several factors – domestic and international.
The Reserve Bank’s tightening of loan-to-value ratios, although aimed at the residential property market, is slowly starting to drag the commercial and industrial property market, with yields and prices under pressure.
The effect can already be seen in the development land sales market, where rising construction costs are compounding the problem.
However, much of the reduced appetite for risk is due to events across the Tasman, where the parent companies of the major New Zealand banks are located.
In Australia, concerns about cooling property markets and an emerging glut of apartments in Sydney and Melbourne coupled with investigative moves by the Australian Securities and Investments Commission and warning shots by the powerful banking regulator have influenced lending decisions.
Post GFC, the Australian banks had already been moving away from wholesale funding towards standardised and low-risk lending.
However, the squeeze on institutional lending may become a more permanent feature of the debt landscape, as banks reduce their exposure to commercial property to levels more in line with other global markets.
In Australia, local financiers and foreign banks are moving in to fill the gap left as the major banks tighten credit for the commercial property market.
Mezzanine institutions can offer far more flexible funding than banks – from secured funding through to subordinated debt and mezzanine financings – and are able to tolerate levels of leverage and structuring and covenant-light lending that commercial banks can’t contemplate.
Large US credit funds are opening offices in Asia and Australia, where there is an increasing appetite among local super funds and institutions for domestic credit exposures.
When it comes to financing real estate investments, buyers have a choice to make: should they apply to their local bank directly, or should they use a mortgage adviser instead?
Mortgage advisers are an established part of the commercial property landscape overseas, especially in Australia and the UK, but not so much in New Zealand.
However, current lending conditions could see the number of mortgage advisers moving into commercial and alternative lending in New Zealand increase.
Due to the challenges in the lending environment and sometimes complicated nature of particular loans, the services and expertise offered by mortgage advisers will become more invaluable.
Jonothan Corbett, director and head of lending at the New Zealand Mortgage Company, says: “First-time commercial property buyers need help on getting the right advice on how to structure a loan, as rules and regulations for borrowing seem to continually change and become more and more complicated.
“The job of the adviser is to get their client the best rates and most favourable terms and conditions.”
Most commercial property owners in New Zealand will only buy, sell or refinance a very limited number of properties in the course of a year, and will only engage with just a few lenders in their local market. By contrast, an adviser will handle scores of transactions and deal with a wide array of local and national lenders on a daily basis.
In addition, it is often cost prohibitive for smaller firms or individual investors to employ financing professionals on a full-time basis to source, negotiate and place their commercial mortgage loans. These investors are best served by utilising a competent mortgage adviser to represent their interests on a deal-by-deal basis.
Mr Corbett says: “A good commercial mortgage adviser will understand the
“A MORTGAGE ADVISER KNOWS WHAT INFORMATION IS KEY TO OBTAINING A LOAN APPROVAL FROM A LENDER. THEY WILL HAVE ACCESS TO SENIOR DECISION-MAKERS WITHIN THE BANKS.”
current lending environment, market conditions, and underwriting guidelines, all of which are constantly changing as the market goes through its typical cycles. They’ll also be able to advise which lender is the best choice to handle any given transaction.”
He adds: “For high-end commercial funding, it can be advantageous to get more than one funding offer on the table. Even if you already have funding available, an adviser can obtain another offer that may be better, right up to the date of final settlement.
“Banks and specialist lenders are more conservative nowadays. They go through a comprehensive application process in order to make sure that the client can firstly afford the loan, and secondly that they will not be put under any undue stress throughout the life of the loan.”
There are many moving parts in a commercial mortgage transaction and many borrowers tend to focus only on the interest rate when seeking finance. “An adviser can negotiate many other deal points,” Mr Corbett says.
“And when it comes to rates, an adviser should also be able to offer different choices, as well as different repayment schedules.”
Advisers can also be invaluable in preparing the loan submission package.
A commercial mortgage adviser knows how to prepare a professional loan request package that will stand out and gain lender acceptance.
“A mortgage adviser knows what information is key to obtaining a loan approval from a lender. They will have access to senior decision-makers within the banks and be able to workshop with them the best deals for their clients,” Mr Corbett says.
“The adviser is another key support person and will work closely with a client’s other advisers, such as real estate agents, accountants, solicitors, business broker, valuers and others.”
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