Our client is the owner of a software company which develops software for video games and casino gaming machines.
He recently had a divorce, and has 2 dependent children, aged 12 and 16.
When the client contacted us, he had already exchanged contracts on a property.
He required a loan for land and construction totalling $1.7M. Due solely to the marital separation, he only had a small deposit, thus requiring a loan approval at LVR 90%, with Lenders Mortgage Insurance.
His income also includes foreign income from an unencumbered investment property outside of Australia ($200/wk).
In terms of debt, the client has existing obligations from commercial property, chattel mortgage and credit card debts.
Disruptions in the business due to the client’s marital separation led to the most recent year’s results being much stronger than the previous year’s.
Servicing would rely only on the most recent year’s income. However, the most recent year tax return, though finalised, has not been lodged.
There were a number of challenges, especially on servicing, that had to be overcome for the scenario to be accepted.
In seeking a loan term of 30 years, the client would be carrying a loan well into his retirement age. To mitigate that, there had to be an ‘exist strategy’ for the loan term, which was sell the overseas investment property and his business.
On reviewing the performance of his business, income in the previous year suffered dramatically as a result of disruptions caused by the marital separation. During the divorce process, the client was often distracted from the business, and didn’t invest much time on the key clients.
As his broker, we had to devise a plan to present his trading performance to the bank. In explaining the previous year’s results in the application, we pointed to a drop in revenue solely due to the client’s marital separation, rather than costs blowing out.
Given a much better trading year most recently, servicing would rely on financials for the most recent year. On this, we took the initiative to work closely with the client’s accountant for the lodgement of the year’s tax returns.
During the application process, we also worked closely with the bank’s credit team, while constantly communicating with the client, to solve servicing issues raised one after another. While the credit team kept the dialogue open, we were able to present fact-based reasonings to each servicing issue challenged.
There were two important levers in the servicing model which got the deal over the line:
Given the disruptions in the client’s business, his age and the size of the loan he was after, cracking the servicing model for credit assessors to approve the loan was not a straight forward task.
The client was seeking a loan at 90% LVR, he had already exchanged contracts on a property and had to settle within 6 weeks.
We worked closely with the two most important stakeholders in the transaction, firstly with the accountant to prepare the submission package, and then the credit team to find solutions to servicing.
The loan finally was approved, and settled on time.
The significance of the new home was to allow the client to re-boot after a very disruptive episode. We are also glad to be able help the client be back on his feet and striving again.
