Recent changes to lending laws and tighter loan-to-value restrictions (LVR) have required banks to take a more conservative approach to approving finance. These changes are impacting borrowers who no longer meet banks’ lending criteria, with many now turning to non-bank lenders as a financing option. Unlike traditional banks, non-bank lenders are not subject to LVR and tend to offer greater flexibility around low deposit lending. For borrowers struggling to get bank finance approval, non-bank lending could provide a solution.

What are non-bank lenders?

Often referred to as “second tier” lenders, non-bank lenders are finance companies, building societies, credit unions, and mortgage trusts, that provide lending services similar to traditional banks. However, unlike traditional banks, non-bank lenders are not subject to loan-to-value restrictions, so can usually offer more flexibility when it comes to first home buyers with lower deposits or those who don’t meet banks’ lending criteria. 

While the biggest non-bank lenders are largely Australian-based companies – the likes of Resimac, Pepper, Bluestone and Liberty – locally-owned finance companies and one KiwiSaver provider are fast filling a financial niche, providing loan solutions to borrowers when banks aren’t able to. 

Why choose non-bank lenders?

On 1 December 2021, major changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) came into effect, transforming how consumer credit is regulated in New Zealand. Banks are now required to undertake far more rigorous scrutiny of a borrower’s income and expenses, resulting in more complex application processes and longer timelines for approval.

As more home loan applications are declined for not meeting the stricter lending requirements, the non-bank finance sector appears to be stepping into the breach, by providing finance solutions when the bank says “no”. While non-bank lenders are still subject to the new CCCFA rules, many of these lenders offer a less rigorous checking process and a faster turnaround on loan approvals.

For New Zealand borrowers with a low deposit, self-employed income, or less than ideal credit history, a non-bank lender could provide a viable option to getting into a first home much faster. 

What are the cons?

One of the reasons borrowers choose to work with a bank first is cost. In most instances, there may be some additional cost involved in working with a non-bank lender. This could be in the form of slightly higher interest rates than those offered by traditional banks, or there may be an application fee charged as a percentage of the loan amount.  

However, in most instances, the benefits outweigh the cost. And for borrowers who are driven to get onto the property ladder sooner, having a finance option provided by a non-bank lender avoids missing out on an opportunity and in some cases even saves money as property values continue to rise over time.

Is a non-bank lender right for you?

At Mortgage Express, our MX branded mortgage advisers work with a number of non-bank lenders to provide financial solutions for mortgages, business finance and personal loans. To find out more and to see if a non-bank lender is a good fit for you, contact our team and someone in your area will be in touch to discuss further.