In New Zealand, banks do the majority of lending for mortgages and are often the first point of contact for borrowers. But they’re not the only choice. For home buyers and property investors who may be struggling to fit banks’ strict lending criteria or loan to value restrictions, non-bank lenders – or second tier lenders – are sometimes an option, providing competitive interest rates, fees and mortgage features outside the mainstream banks.

What is a non-bank lender?

As the name implies, non-bank lenders are businesses that offer mortgages, but are not traditional banks, credit unions, or building societies. They are lenders only, and because they don’t hold a banking licence, cannot offer savings or deposit accounts, or term deposit investments. 

Non-bank lenders tend to be smaller, privately-owned businesses, with fewer internal rules and policies restricting their lending. However, just like banks, non-bank lenders are regulated by the Reserve Bank of New Zealand, so are required to follow lending rules and can be considered a trustworthy alternative to mainstream lending!

How does a non-bank lender differ?

In the past, non-bank lenders may have been perceived as a less safe option compared to banks, or only suitable for those with poor credit scores, but that’s no longer the case. While non-bank lenders may only make up a small percentage of the New Zealand home loan market, they are growing in popularity and strength.

Here are some of the key differences between bank and non-bank lenders:

• Non-bank lenders don’t hold a bank licence, so cannot offer deposit options such as savings accounts, transaction accounts or term deposits.
• Because they’re mostly privately owned and funded, non-bank lenders tend to be a little more flexible in how they assess loan applications.
• And because non-bank lenders are not impacted by loan to value restrictions set by the Reserve Bank of New Zealand, they’re often a solution for Kiwis who are self-employed, have a low deposit, or those with credit issues who may be struggling to secure finance from mainstream banks.

Why choose a non-bank lender?

Mainstream banks work well for borrowers who fit lending criteria and deposit conditions. But for borrowers outside these requirements, it can be a lot harder getting your finance approved. Mainstream banks are limited to how much low deposit lending they can do under the Reserve Bank’s LVR policy, and they’re also bound by the CCCFA regulations.

Here are some instances where a non-bank lender could be the right finance solution:

• Borrowers with a smaller deposit or less than 20 per cent.
• Borrowers with a poor credit history or those unable to prove income.
• Borrowers who may have been turned down by a mainstream bank.
• Borrowers who need to get finance approval quickly.
• Borrowers who require a more flexible approach to lending.
• Property investors just starting out.
• Experienced property investors with a healthy property portfolio.

What are the disadvantages of non-bank lenders?

Non-bank lenders may charge higher interest rates than those offered by traditional banks, because their interest rates are driven by risk. In addition, the loan term offered by non-bank lenders may not always be suitable for all borrowers. And because they’re smaller businesses, non-bank lenders may be more vulnerable to fluctuating economic conditions.

However, because they offer more flexibility, non-bank lenders are often a viable solution for first home buyers who don’t meet banks’ lending criteria or investors growing a property portfolio.

Could a non-bank lender be right for you?

As lending restrictions have tightened within New Zealand, non-bank lenders are stepping up with alternative finance solutions for home owners and property investors alike. Where mainstream banks require borrowers meet a wide range of lending criteria in order to be approved for lending, non-bank lenders typically apply a more flexible approach. They can often approve lending where the traditional banks can’t.

If you’re struggling to get mortgage approval because of a low deposit, adverse credit history, self-employed income or irregular income, talk to the team of mortgage advisers at Mortgage Express. Mortgage Express branded mortgage advisers work with a panel of bank and non-bank lenders, matching up clients’ requirements with a lender to suit. Find out if non-bank lender finance is right for you.