Non Banks in New Zealand

[brokerman]

A lot of noise around non bank lending at present as the banks are forced to delve deeper into our financial lives before making any decisions.

As an Adviser who specialises in this space I thought an update on this type of lending might be helpful.

Non bank used to come under one title, 'Second Tier'. However a lot has changed in recent times so we now have 4 'tiers' within non bank lending. The lenders are now funded in several ways including the trading banks, institutional lenders and peer to peer. There are a couple who self fund too.

1. Near Prime. This is a non bank long term mortgage at close to bank rates. Some non bank lenders can offer investment loans of up to 80% either standalone or bundled with an owner occupied. Others take a softer view on existing borrowing and concentrate on the actual property at hand meaning a greater borrowing capacity in many cases.
2. Specialist. A medium to long term mortgage usually without early repayment charges (depends on the product) and designed to help those who have suffered poor credit or recently self employed or who find income hard to verify in the traditional way. The plan is always to get to bank rates as soon as possible and one lender has an internal rate stepdown for good behavior ending with prime rates. Several lenders in this space also offer Near Prime as above.
3. Short term. Usually up to 12/18 months and designed to fix something. Could be a reclad, build, renovation for example or flicking property. Also used a lot to get people into a property now and then refinance when whatever caused the issue in the first place is resolved. Recent bankruptcy discharge, just started self employment if a different industry, recently returned to NZ and no track record. The list is extensive but has the same theme, a short term issue that can be resolved and then move onto more regular lending.
4. Second/Caveat lending. Generally smaller sums (up to $100,000 as a Caveat for example) and short term. Exit strategy is important as these lenders don't do long term products. Similar to Short Term above in that they are designed to fix or help something and then get repaid by either sale or refinance once the issue has been resolved.

Non banks account for less than 5% of lending at present and some insiders predict this will treble in the coming years. Watch this space as they say!

I hope this is of interest, I see too many people almost giving up when the bank says no!

[Perry]

What of CUs like First & Baywide? (Or Unity, as they now style themselves.)

There are smaller CUs, but I don't know anything about their lending processes.

[brokerman]

CU's provide a good alternative, case by case applications and tend to be a bit more relaxed than the banks.

[Perry]

CU's provide a good alternative, case by case applications and tend to be a bit more relaxed than the banks.

Is my recall defective? I have the notion that they are not subject to the same deposit rates and other strictures which banks are?

[brokerman]

Correct. Far more flexible than a bank.

[donna]

Thanks Brokerman. I wonder how you can get the message out to the FHBs to be more aware of their borrowing options?

Plus would their interest rates be better than personal loan providers? And is the lending criteria the same as banks? For example if a household earns $85K pa and has a $450K loan would one of your lenders give them renovation loan of say $50K?

cheers
Donna

[brokerman]

Thanks Brokerman. I wonder how you can get the message out to the FHBs to be more aware of their borrowing options?

Plus would their interest rates be better than personal loan providers? And is the lending criteria the same as banks? For example if a household earns $85K pa and has a $450K loan would one of your lenders give them renovation loan of say $50K?

cheers
Donna

The message is certainly out there with the press, most of it scathing about how the new rules are being interpreted.

Personal loans are really expensive compared to home loan rates.

Second mortgages start at 12.5%, not cheap!

[donna]

^^ definitely some opportunities to grow if I am reading between the lines correctly - i.e. non-banks don't need to comply with the CCCFA. Thanks for the info I will be sure to put this discussion in our next monthly newsletter - due out this week.

cheers,

Donna