IF TIME is money, then it is little wonder that an increasing number of property agents are voicing their frustration at banks, saying their loan approval process for deals is moving at a glacial pace.
A New South Wales agent recently told Beef Central the situation was ridiculous.
“It has become nearly impossible to run a six-week auction campaign. Potential buyers have no hope of getting their finance approved in time, unless they see a property on the first day of a marketing campaign and are a fair way down the track with the bank beforehand, in regard to their finance,” he said.
He said even ‘really strong’ family farming businesses were being made to jump through unbelievable hoops, with the level of investigation ‘beyond belief’.
Another agent from South Australia also raised the issue, saying banks were moving at snail’s pace in terms of loan approvals (around 45 days), making it extremely difficult for potential buyers to purchase a property at auction.
He said potential buyers who had the funds subject to finance were being overlooked by others who are cashed up.
“For instance, let’s say there are two interested parties. One offers $3 million cash and the other offers $3.1 million, subject to finance, which they are likely to have approved. Eight times out of 10, I have to deal with the producer who has the cash.”
Banks are not to blame
The reality is that banks are facing greater scrutiny on debt serviceability and compliance in the wake of the Banking Royal Commission, and it is taking them much longer to approve loans.
Martin Pentecost from Central Queensland’s finance and agribusiness consultancy Grow said it was not fair for agents to bash the banks.
“The reality is deals are just taking longer to assess. It is a two-way street. These time-frames started tightening up after the Banking Royal Commission, and COVID has simply added another layer.”
Mr Pentecost said the lengthy times were the ‘new norm.’
“There are new demands on every part of the pipeline and everyone needs to be realistic about time frames, because there are not enough hours in a day. The pressure has caused some bankers to suffer nervous breakdowns and another I know starts work at 4.30am just to get through their immense workload.”
Ian Robinson is a financial specialist at Robinson Sewell Partners.
He said the Royal Commission was a catalyst that fast-tracked greater due diligence by the banks.
“It is positive because it makes borrowers do a deeper dive within their own business to make sure they have the bankability and capability to borrow,” he said.
“However, that due diligence means more detailed information needs to be provided by the borrowers to the banks to satisfy credit and technical criteria.”
Mr Robinson explained that many delays were caused by borrowers not being ‘presentation ready’ for the banks, and the banks were wearing the frustration or the blame.
“Borrowers cannot be blamed because they haven’t been educated in the process of what banks require – they are just going on the past history of their previous dealings. Had they known what to prepare and present, the application process would move more quickly.”
The financial environment is certainly different to what it was two years ago, according to Nutrien Harcourts Dubbo-based agent Mat Smith. In this earlier article he said: “You could make an offer and within three weeks, the bank could give you an indication. Now you could safely say it’s eight to ten weeks away.”
If the operating environment has changed, is it time for sellers, vendors and agents to change their approach?
When agents offer a property to market, they typically launch a marketing program culminating in an auction. To bid at this event, borrowers need unconditional approval to sign the contract (on that given day) and exchange.
If that environment does not exist anymore, perhaps agents should give borrowers a longer runway prior to auction. Another suggestion is to change auction conditions so interested parties can exchange on a contract pending finance approval.
Mr Robinson believes that agents have been slow to read the environment they are currently operating in.
“We cannot live in the past, and if the banks are taking a bit longer (because of the extra due diligence) then agents might need to restructure their process.”
Lengthen the runway
He criticised the way the auction process currently stands.
“Vendors may be missing out on potential buyers because the program is too short for these interested parties to get themselves ready.”
Mr Robinson said when a marketing campaign is started, the clock was on.
“By the time a potential buyer notices the property is up for sale, considers it, does their due diligence, decides to buy it and then goes to the bank, there may be only two or three weeks left before the auction – the runway is just way too short.”
Grow’s Marty Pentecost agrees, saying agents may need to change the way they do business, as much as anybody else.
“It is all about expectations. Some agents are being totally unrealistic with marketing campaigns and time frames, which should now be extended to accommodate the time it takes to approve a loan.”
He said interested parties could not go to auction subject to finance – they needed to be ‘ready to roll.’
“If a client approached me with a 14 day finance clause, the first thing I would do is ring the agent, tell them they are unrealistic and ask them to renegotiate with the vendor and extend it to 21 days.”
“Even valuers are taking their time, with one recently quoting him eight days and another 15 days, which makes it impossible to complete a 14 day deadline,” he said.
Advice to buyers & agents
Ian Robinson downplayed agent suggestions that banks are making established farming families jump through unbelievable hoops to secure additional finance.
“It is an adjustment to your mindset. I am doing deals with the banks all the time, so I do not see it as onerous. Once you realise and accommodate the process, then you just get on with it, roll the sleeves up and get it done.”
Mr Robinson said the application process could be completed efficiently if participants engaged and participated by the rules.
“The endless frustration is caused by fighting against the system and believing that anyone, no matter how strong they are as a borrower, is exempt from those rules – which they aren’t.”
If producers are in the mindset of looking to buy, then Mr Robinson urged them to get themselves ‘presentation ready’.
“There is quite a lot of work involved, but that carries forward. So, when a producer finds a property they want to purchase, they are 75 percent ready. All they need to do is dove-tail the technical information of that particular acquisition and their data pack is ready for the bank.”
He said waiting to find the right property and starting from ground zero meant they would be a long way behind the game.
“There is a good chance they will be missing out on the opportunity, especially if there are other borrowers out there who are presentation-ready and have their cash ready pre-approved.”
Marty Pentecost is also trying to pre-position his clients.
“If they are interested in purchasing property, they need to approach us earlier rather than later, so we can set the wheels in motion and gain pre-approval from the banks.”
He said primary producers seeking expansion needed to know what the marketplace will lend them before they become contenders.
“My advice is to get in early, to engage with your financiers and start the discussion. Don’t call the bank a week before an auction and expect to be granted finance approval, because it’s not going to happen.”