In recent times, traditional banks have visibly tightened their credit policy – 90% lending is mostly unavailable. But Lending under 80% is also assessed under a painfully conservative criteria which has ended up penalising the very buyers RBNZ sought to protect when they introduced LVR restrictions.
Despite well lauded initiatives like the “Welcome Home Loan”, “Axis Homes” and “Home Start Grant”; a demonstrated reluctance to lend by the main banks has resulted in fewer clients qualifying for a mortgage.
These include buyers looking to purchase their first home, people looking to consolidate their debts, clients seeking mortgage repayment holidays, investors looking to purchase rental properties and clients seeking finance to build their dream home. In most instances these are people that would have been approved for a loan 6 months ago. However, because clients are finding it hard, often they simply give up or obtain funding from high interest lenders with excessive fees and terms.
This is where non-bank lenders come in. Although more expensive than traditional banks, there are non-bank lenders, who can assist with all of the above scenarios and in some cases with rates as low as 5.95% pa. Over the last few years, the non-bank sector has filled a gap in the market by providing solutions to countless Kiwis in varying situations. These include:
Clients with low and/or part gifted deposit who have been declined by a main bank:
90% lending for owner occupied property isn’t widely available anymore. The few that qualify need to tick a dozen boxes before a traditional bank will even consider an application from them. Any variation from what is considered a standard application will be declined and this includes gifted deposits.
Where clients don’t have adequate deposit; a non-bank lender will allow a second mortgage for the shortfall, provided clients are able to demonstrate ability to service both mortgages. (For eg: if client has 10% or 15% deposit, they can get approval from a non-bank lender for 80% with the residual 5% or 10% from a 3rd party lender by way of a 2nd mortgage.) This is usually a two-step process, as a broker will then work with the client to transition both mortgages to a traditional lender within the first 2 years.
For property investors impacted by the RBNZ LVR restrictions, there are non-bank lenders who will still consider 80% lending on the investment property as long as the residential property is also secured with the same lender.
Even if you have adequate deposit, if you are unable to prove all of your income, a traditional bank will not assist. Examples include self-employed clients without financials and seasonal or contractual workers. A non-bank lender can assist with Low Doc Home Loans until clients have proven income from their business and can be refinanced to a traditional lender.
Most people have consumer debts. Often you get loans for replacement vehicles, medical emergency, funeral costs, overseas holiday, weddings, property renovations or simply max out your credit cards. Meeting all these debt repayments plus your mortgage can be extremely stressful. By refinancing and extending your mortgage with a non-bank lender, you can consolidate your loans which will help reduce the interest you pay as well as reduce your monthly outgoings.
An alternative is a separate personal loan from a general lender which albeit higher than a home loan rate will still save you significant interest and save you juggling several loans and different creditors.
Life happens and as a result you go through periods where you are made redundant or unable to work due to sickness, pregnancy or death in the family. When this happens, mortgage repayments are the last thing on your mind.
When you experience financial pressure, mortgage repayments are amongst the first things people tend to overlook. If caught early enough, you can negotiate with your lender and apply for a mortgage holiday however most conversations occur well after demand letters and PLA’s have been issued.
Depending on the equity in your property, a non-bank lender can help you avoid mortgagee sale by (A) Buying you the time necessary to market and sell the property yourself over a specific time frame. (B) Refinance and provide an interest only loan for a specific period until you are in a position to meet full principle and interest payments. (C) Help you consolidate all other consumer debts and mortgage lending so you can afford the single payment by stretching the term of the loan.
Clients with Impaired Credit and Inland Revenue Debt:
Historical bad credit should not be an impediment to owning your own home. Inland Revenue debts and late payments on consumer debts can often end up on your credit history. Unfortunately neither IRD nor lenders are sympathetic when you are under financial pressure. A non-bank lender will consider your home loan application if you are able to provide a reasonable explanation for that default and you have made attempts to rectify your historical bad debts. A Non-Bank lender will also assist with repayment of tax arrears to the Inland Revenue.
There are countless other ways a non-bank lender can help where your traditional bank falls short for eg. Reverse Equity Mortgage, Second Mortgages and Bridging Finance. Unlike a traditional bank, non-bank lending relies as much on a thorough understanding of client’s personal circumstances as their financial data. Therefore there are a wide range of products available to suit different circumstances.
A mortgage adviser with a good grasp and understanding of non-bank lending products is invaluable as the adviser can prequalify and select the most suitable lender. They can also sift through what their client provides to package the relevant information accordingly.
Non-bank lenders generally charge a higher rate and some will include an establishment fee and a broker fee. However these will be disclosed at the outset. Because of the Responsible Lending Code which took effect in 2015, all lenders are required to disclose the full cost of the loan to you so there are no hidden costs involved. So if you require financial assistance and your own bank has said “No”, Non-bank lending might be a viable solution.
The alternative is to do nothing.