What is 1 advantage of Non bank home loans in NZ?

Alrighty then, chances are you’re reading this is because the main banks aren’t coming to the party to approve your mortgage or your mortgage broker has advised that an alternative solution is to consider using non bank home loans in NZ? So, here you are googling, what is an advantage of non bank home loans in NZ?

If you’ve been to the main bank, the main bank is referring to the biggest known bank in NZ, such as ASB, ANZ, Westpac & BNZ, other smaller banks are still considered in this criteria, which are TSB, SBS and Kiwibank. These are more of the traditional path that Kiwi’s take when buying a home or getting a pre approval, however when times get tough or when banks say NO. Then what other solutions are there that can assist?

What is non bank lending in NZ?

Firstly, I want you to have an open mind and that non bank lending is not a ‘dodgy’ bank or like a loan shark type business where they charge a 300% interest rate! This is a myth or a misunderstanding when the general public hears about non bank lending. 

One of the reasons I believe is when in the boom and good times, many people can easily get a loan at the main banks and so when you hear people say they couldn’t get a loan approved at the banks they had to revert to using a non bank.

It’s like using a mortgage adviser/broker, most people consider only using a mortgage broker/adviser to get them their finance when they can’t get it themselves or the bank rejects them. But that again is a misconception, because mortgage advisers are not there just hunting the best deal for you, the key is providing you with sound and independent advice that suits your needs.

In Australia, more than 60% of Aussies, use a mortgage broker, and in NZ it’s only 30%, however, that is changing. Not only because they realise the service is generally free, but also the advice they get from their mortgage broker. It’s interesting because our major banks are essentially Aussie banks. ANZ NZ is owned by ANZ AU, Westpac is owned by Westpac AU, BNZ is owned by NAB, ASB is owned by Commonwealth Bank of Australia. 

Non banks don’t hold an NZ banking licence by the RBNZ, therefore they can’t accept or offer deposit accounts, these are savings accounts and term deposits. 

Your Non bank home loan in NZ doesn’t mean they are not trustworthy, they are still regulated by the government but have fewer oversight, they still have to adhere to the responsible lending code. This, therefore, allows them to be more flexible with their credit policy and have more options to lend to their customers. 

How do non banks work in NZ?

With any business, you’ll need to have some sort of working capital to start off. In terms of Non banks, they are usually funded by either larger banks who give them a facility line and interestingly enough, they will also have their own credit policies that they will only lend to certain customers that meet their criteria, otherwise, they’ll pull their funding line. 

Some other non banks are funded by having direct investment into the business, i.e. investment banks. So they want a return on their money. 

What are non bank interest rates?

Generally, non banks are more expensive than your traditional main bank. What area’s would they be more expensive in?

Interest rates

Rates will always be more expensive than main banks, but not much more. However, it is dependent on which non bank you’re looking at. 

For example, Resimac has an interest rate of 2.99% for 2 years vs 2.49% at the main bank (as of March 2021)

When I help my clients get a non bank approval, they usually surprised that it is comparable to the main banks. However, some non bank home loans in NZ charge higher as it is dependent on the product you fit in. In some cases, you could be paying between 5%-7%. Your mortgage adviser will give you an idea of where you’ll sit with these lenders. 

Fees

There will usually be more fees involved and unlikely to be waived when comparing to a traditional main bank.

Broker fees

Depending on the non bank, there is also a brokerage to be pay to the adviser, as some non banks don’t pay a commission to their mortgage adviser. These fees can usually be added or sometimes known as capitalised to the loan. 

What is the best non bank mortgage lenders in NZ?

There are many non bank options out there, but the biggest and common ones are:

• First Mortgage Trust
• Bluestone group
• Resimac

There are many more out there, but those are the most common and popular ones. They are in no particular order. The best non bank home loans in NZ is the one that your mortgage adviser can guide you through because every non bank lender is different and so you need to understand their policies before deciding which non bank to go with. 

Why consider using a non bank?

There are many reasons why you should choose a non bank and consider it, but generally, most customers will fall within these 3 common areas:

Self employed/Business owners

The main bank policy for self employed people are already tough enough to meet, usually, most of these traditional banks want 2 year financial statements so that they can send a trend the business is profitable. But like most self employed people, who don’t have two years behind them find them to stringent and so non bank lenders can come to the party and lend the funds for buying that home. 

With COVID-19 the impact of business in the hospitality, tourism and retail industries have taken a major hit, so even some non bank lenders are very cautious about who they lend to when we are in this economic environment.

However, because of the higher fees and interest rates, it really pays to understand your business and track how your business is performing and factoring these additional costs. It’s best to seek a mortgage adviser and team up with an accountant to assist with this process.

Bad credit 

The most common one I see that my customers have to go down the path of non bank lenders. One of the main reasons that main banks really look at is your credit rating, there are three things they look at

1. Serviceability criteria
2. Deposit criteria
3. Account conduct criteria

We are really referring to number 3, account conduct and how bad credit impacts your chances of getting a pre approval even if it was 2-3 years ago. When a bank looks at your bank statements they are identifying, your short term debts i.e. any direct debits and also if you’re making these repayments on time and not having a dishonour or default payments. 

When banks identify and see there are bad credit, such as default then it’ll set of alarm bells and will chance of getting approval will be reduced, if it’s 2-3 years ago, depending on the nature of the default, then we may be able to work around it and get ana approval from the main bank. 

However, if it’s because it was a lack of accountability and just ignoring the default and ultimately having a debt collection agency chasing you then chances are it will be a decline!

This is where non bank lenders come to play and assist you with getting approval for your home loan. Again depending on how bad the credit is, you’ll fall into different types of products they have on offer to their customers. Usually, interest rates are higher, the exit strategy then is to refinance to a main bank after 12-18 months, assuming that your credit is back up to scratch and we can demonstrate to the main bank that your account conduct has dramatically improved. 

So, the moral of the story is don’t let your bad credit history stopping you from buying your home! Speak to your mortgage broker and they can help guide you in the right direction. 

LVR limitations 

If you’ve been following the COVID19 response on the property front, at the start of the pandemic. The Reserve Bank of New Zealand, removed LVR restrictions, if you not sure what LVR is, I’ve written a dummy guide here. 

Before the pandemic, if you were wanting to buy a residential investment property you required having a 30% deposit. But RBNZ lifted these restrictions and now only require a 20% deposit, therefore with the same deposit as if you’re buying your own home. 

I won’t go into to much detail about why the RBNZ did this, but one thing was trying to stimulate the economy and there was much fear that we will go into a massive recession. However, this did not happen and the housing market rocketed up like SPACEX’s falcon heavy rockets into space. 

The rate of increase was such at an alarming rate that before the main banks took action first and restricted the lending back to 30% deposit in November, 40% in December. This was even before RBNZ taking action or where they have said the limits would come back after 12 months.

So now the main banks are only lending to investors who have a 40% deposit. Some non banks are still only doing 20% deposit requirement for investors as they aren’t governed by those rules. However, these doors are looking closing every day, that even some non banks such as Resimac have also switched to the 40% deposit required on investors. 

Again, speak to your mortgage adviser and he or she will give you guidance in which lender is the best for an investment property. 

What are the advantages of using non banks?

So the biggest advantage is that non banks can provide you with solutions that the main bank would not. 

Here are the advantages of using non bank home loans in NZ

1. Quicker at turning applications around
2. Competitive rates across other non bank lenders
3. Not as strict for self employed people
4. Personalised loan products to suit everyone’s needs
5. Relaxed credit requirements for customers - again dependent on their policies
6. Flexible terms
7. LVR limitations are not as strict as the main bank 

What are the disadvantages of using non banks?

Here are the disadvantages of using non bank home loans in NZ

1. Higher interest rates
2. High application fees
3. No branches 
4. Very hard to get approval on low deposit loans i.e less than 20% deposit 
5. Hardly will provide pre approvals, will only work on ‘live deals’ 

Why non banks are here to stay for the long term

I see non banks will play a bigger role in NZ financing space, as main banks become extremely risk adverse and only lending to customers who are your standard ‘perfect’ customer where you’re ideally a salary/wage earner and have zero debt with a 20% deposit. Then the chances are you’ll easily get approved. 

However, with their credit policy changing constantly, the non bank home loan space will continue to grow, we have already seen Resimac’s market grow by 30% this year alone, mainly due to A) covid-19 B) the banks are declining customers. In some cases, customers want a turn around service and these non banks can provide that. 

Obviously, the downside is the higher cost. However, if you find the right non bank lender that fit your needs you can then weigh up that opportunity cost and decide which path to take!

Summary - What is 1 advantage of Non bank home loans in NZ?

To conclude, non bank home loans in NZ are safe and easily accessible out there. So don’t just think that the main banks are the only lenders out there that will give you an approval for a mortgage. There are many options!

They are a great addition to have when your either building up a rental portfolio!

If you’ve got any questions, feel free to drop a question below, or if you want to discuss privately. There are two options

One, book in a time with me below or send me an email will@simplyfinance.co.nz