Australian Broker Magazine feature: Scott Juda, A Big Deal

 

The Scenario

The applicants, a young couple, wanted to purchase an owner-occupied property in
Sydney using a family guarantee to cover the deposit. The purchase price was around $750,000 and they had funds for stamp duty and legal costs, etc., but they wanted to use a family guarantee for 20%.

The problem was the parents [guarantors] had multiple parcels of rural land in regional NSW, and the land sizes were all larger than any lender’s acceptable rural limits. They were also primary production parcels. The guarantors wanted to offer the smaller of the blocks, which would have provided ample security regarding value and marketability.

I’d been advised by a few lenders to cash out funds against the land to gift to the children [applicants], although the preference is to provide a guarantee so the children make the full repayments. The guarantor and borrowers don’t want the hassle of having split debts and repayments, not to mention, I’m pretty sure this is against most policies to ‘on-lend’. It’s worth noting that the land was marketable, which reduces the overall risk to the guarantors and bank as the residence is on the largest block. In the event that the lender would have to take the security, it’s in the lender’s best interest as there is still ample land to generate income and also to retain the family home.

After talking to nearly every one of my BDMs and calling the credit hotlines twice to make sure, I spoke to people they referred me to in business banking, agribusiness, and even other award-winning rural brokers. Nobody in agribusiness would touch it because it was for a home loan, and no residential channel would touch it because there was a commercial security.

I felt like I had hit a wall and nobody could assist my client or me as it appeared that nobody had ever tried this before. The only option was for land to be sold to release cash.

The Solution

I never give up. I just couldn’t believe that our farmers seem to get such a bad run with the banks. It made absolutely no sense to me that this couldn’t be done.

I managed to find policies with one particular lender that were close enough to match to this scenario, but there were going to be a few exceptions required to get this across the line. Writing a strong credit memorandum was critical to address all these points. My BDM helped get it in front of the right people in credit to take a serious look at it.

The application was declined initially as the guarantor’s security size, zoning and type of land use was out of the scope of the lender’s standard security policy. I then went back to the lender’s policies for guarantees, first home buyers and security to pull out the sections that were relevant to this deal, and I addressed the concerns in each policy. I compiled more notes and went back to my BDM and credit.

I invested more time breaking down the details of the deal, addressing the potential risks to the borrowers, guarantors and lender. Once that was done, I then addressed how these risks had been mitigated within the structure of the deal and the common sense approach as to what would happen in the event of different circumstances.

I also used the bank’s policy to shape another scenario that if the guarantors owned a studio apartment in Sydney to offer as security, which was worth significantly less and produced less income, the deal would have been a no-brainer and would have been approved straight away.

Why should this have been treated differently?

The deal was finally approved with some additional information to add comfort. The clients found their property shortly after and are now settling into their
first home.

The Takeaway

I learned that it’s worth fighting the good fight. I knew there was a deal to be done as someone should want these great clients.

My clients are over the moon. The night before the approval finally came through, they had basically given up all hope and were thinking about starting to make other plans for their future.

We have the ability to help people. We have transparency across a multitude of lenders and their policies, credit teams and BDMs, which give us the ability to find solutions. This is one of our biggest competitive advantages as brokers, which doesn’t just make the process easy for our clients, but possible.

I’m proud to have been able to assist my clients in achieving their dream. From all the people who I had contacted during this process, the time and effort it took, and the research involved, I’m confident there would have been very few brokers or bank lenders that could have written this deal.