How Do Property Prices Impact Caveat Loans

By: Aaron Robbins0 comments

The rise of property prices in Australia over the past year has impacted many areas of society and finance, including caveat loans.

In an ever-changing business landscape, more and more business owners are looking towards a short term business loan to solve a myriad of needs in their business.

For those looking at caveat lending in the near future, it’s understandable to question how property prices will likely impact their caveat loan.

We walk through how property prices can influence caveat lending so that you can confidently step into your next business finance solution.

What does a caveat loan have to do with property prices?

Caveat loans are business loans that effectively release equity in a business owner’s real estate property to lend money for business purposes.

How much equity a property owner holds in their property can be determined by calculating the difference between the property value and the debt held against the property.

Of course, the higher the value of a property, the more equity it’s likely to have — meaning the loan amount for a caveat loan, using that property as security, could be much higher in a buoyant market.

Similarly, suppose a property suffers a significant drop in value.

In that case, this could significantly reduce how much equity can be utilised to fund a caveat loan.

Are short-term caveat loans accessible in a fluctuating property market?

Accessing a short-term caveat loan is entirely possible in a cooling property market.

Essentially, a caveat loan relies on there being available equity within a property to use as security.

The impact of property prices on caveat loans is not sustained for years on end, as they are short-term loans.

Property owners must ensure that they know how much equity exists in their security property when they lodge their caveat loan application — this ensures there is sufficient equity to meet the desired loan amount.

We can lend up to 75% of your property’s equity at Diverse Funding Solutions! 

The benefits of caveat loans over traditional business loans or bank loans

Looking at the plus side of how property prices impact caveat loans, a spotlight is shone on the benefits of caveat lending over traditional business finance, including bank loans.

The fundamental difference between caveat lending through Diverse Finance Solutions versus traditional financing is that, at DFS, we offer caveat loans via private lending.

The ‘Big 4’ banks, or other lenders, including credit unions, are bound by rigid lending criteria, which private lenders are not.

Working as an authorised credit representative of an Australian Credit Licence means that not only are we a credible caveat loan lender, but we can access over 200 lenders to assist Australian businesses in achieving their business goals.

If you’re looking to apply for a caveat loan with DFS, here are some of the other benefits you can look forward to:

Minimal Documentation

  • As private lenders, our application process isn’t over-complicated.

    Instead, we often only require a mortgage statement, identification, and a council rates notice to process your application.

    There is no need for years upon years of tax returns, revenue forecasts, or evidence of business trading history.

Fast approvals

  • Fast caveat loans earn their name; at DFS, we can fund your caveat loan in as little as 48 hours! 

    Not only do we offer fast approvals to get your business funds quickly, but we make the process as hassle-free as possible.

    This makes caveat loans different from other loans, such as a home loan or first mortgage, which can stretch funding to take weeks, if not months.

No need to access your credit file

Credit checks are not part of our application process, making them accessible for borrowers with bad credit.

We look to set an appropriate exit strategy for the loan and devise repayment schedules accordingly, instead of relying on a credit check.

Caveat loans explained

Caveat loans are one of the most flexible and fast finance solutions available to businesses.

Below, we introduce the crucial facts you need to know about using a caveat loan to solve your business funding needs.

What can my business use a caveat loan for?

Aussie businesses use caveat loans for a range of business purposes, such as:

  • Improving cash flow
  • Funding renovations or expansion
  • Preparing a business for a property sale
  • Putting on staff
  • Getting sorted for the end of the financial year
  • Managing tax debt

The range of business needs caveat loans can help solve is vast.

Undoubtedly, many factors affect a business’s cash flow in the current business climate, which is one of the most widely used reasons for accessing caveat loans.

How are caveat loans secured?

Caveat loans use real property, including an investment property or residential property as security against the loan.

This is done by registering the lender’s interest via a legal caveat on the property title.

It’s important to note that the legal caveat does prevent other transactions from taking place on the property until the caveat loan is repaid, and thus the caveat is removed.

This includes any other lending transaction from being able to take place or a property sale.

In addition, overseas properties are not able to be used as security due to legislative differences in other countries.

Can I access a caveat loan with an existing mortgage?

You can absolutely access a caveat loan, even if you have an existing mortgage.

Due to the legal caveat sitting on the property title, it effectively sits behind any mortgage, including a second mortgage.

Provided there is equity in the property, you can apply to use the property as security for a caveat loan. 

What interest rate is charged on a caveat loan?

At DFS, we offer Australia’s lowest private lender rates on our caveat loans, starting at 0.77% per month.

There are also no other hidden fees with our caveat loan product!

What are the loan terms of a caveat loan?

As a short-term loan, caveat loans are typically offered anywhere from 1 month to 24 months.

Our short-term caveat loans can be tailored to terms relevant to your personal circumstances and financial needs, which means we can extend the loan term past 24 months if need be.

Do I need legal or financial advice to get a caveat loan?

Any financial decision that affects your business should be made with adequate consideration.

You do not need legal advice or financial advice before proceeding with a caveat loan application.

We offer great private lending finance solutions but cannot offer legal advice on using a caveat loan.

What’s happening with property prices in Australia at the moment?

As a hot topic in mainstream media, even those who are not actively monitoring the property market within Australia are no stranger to the fluctuating house prices we’ve seen over recent years.

With the Reserve Bank of Australia recently announcing a fourth interest rate increase, many have speculated on its impact on housing markets.

The 1.75 percentage point increase to the cash rate is expected to substantially reduce the amount new home buyers can borrow and, therefore, increase supply as demand drops and bring house prices down.

Starting a caveat loan application

Many lenders, such as those offered home loans or second mortgages, have also been impacted by Australia’s fluctuating property prices over recent months.

Private lending, however, has largely been unaffected, and we can still offer excellent business finance in a timely manner.

Despite recently cooling off, Australia’s hot property market continues to see values higher than pre-pandemic, with the total value of Australia’s residential dwellings rising by $221.1 billion in the March 2022 quarter alone!

With no application fees and valuations required only seldomly, we encourage you to contact us today.

Alternatively, you can get a quote or apply online to use the equity in your property as a foundation for your business growth.

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