8
www.brokernews.com.au
News
For all the latest mortgage industry news, visit www.brokernews.com.au
Caveat loans: options still available Brokers can still offer shortterm lending to clients despite restrictions stemming from the new consumer credit protection law. Paul Stone, director of HomeSec Finance Express, is warning brokers that some types of investment loans have been reclassified as consumer loans under the National Consumer Credit Protection Act – meaning that caveat loan providers are now unable to provide loans in certain circumstances in which they have been able to prior to 1 July.
Examples of situations in which a caveat loan would not be available include an individual seeking funding to do some repairs to a residential investment property prior to the listing of the property on the market, and an individual looking for funding to pay arrears on an existing residential investment property. However, there are still a number of circumstances in which caveat loans will still be available, following clarification from ASIC. “We can no longer lend for ‘investment purposes’, except
Caveat loans: when are they not allowed? • An individual wants funding to do some repairs to a residential
investment property, prior to the listing of the property on the market • An individual wants funding to pay arrears on an existing residential
investment property • An individual wants to subdivide a block of land into two or three
blocks and then sell them off once subdivided, but needs shortterm funding for capital works, permits and so on, when the land is purchased by an individual
when the borrower is a company,” said Stone. “However, we can still lend on commercial and residential property, as long as the purpose of the loan is wholly or predominately business. If the borrower is a company or trust, pretty much nothing changes. If the borrower is an individual, then the loan needs to be wholly or predominately for business purposes or be for a commercial property transaction.” Situations where a caveat lender will be able to provide a loan include a company wanting funding to buy a residential investment property and shares in a company, a self-employed individual who wants to use his home as security to borrow funds to put into his business, and an individual seeking funding to carry out repairs on an existing commercial investment property. Stone added that the caveat lender will need “some evidence” of the actual business purpose, and can no longer rely on a
Paul Stone
declaration of purpose being signed by the borrower. “ASIC wants you and us as the lender to be able to verify what the borrower is using the funds for,” he commented. “In most cases, this should be very easy.”