NZ’s Best Non-Bank Lenders

Recently, we have seen the emergence of a new subsector of the finance industry, with particular expertise in short term property finance. Positioned between traditional banks and high-interest payday lenders, a new group of non-bank lenders, such as Alternate Finance, have emerged. We provide finance to individuals and businesses which were previously underserviced. Some parties may have a chequered credit history but have sufficient income and assets to provide security against short-term loans. We are here to discuss their financial needs and assist where possible.

Monetary policy in New Zealand

It is fair to say it has been a challenging few years, not only in New Zealand but across the globe. First, we had the US mortgage crisis in 2008/9, the after-effects of which are still being felt more than a decade later. Then we have the ongoing impact of Covid, the war in Ukraine and the cost of living crisis. This has all culminated in a sharp increase in global inflation, placing economies and household incomes under colossal pressure.

To support the economy, the Reserve Bank of New Zealand maintained base rates at 0.25% throughout the majority of 2020/2021. However, towards the end of 2021, the base rate started to increase, a trend which has continued during 2022. Consequently, New Zealand GDP growth of 5% in 2021 is expected to fall to 3% in 2022 and 2% in 2023. Unless inflation is brought under control in the short term, these forecasts could experience further downward revisions.

Threat of inflation

In the first six months of 2022, base rates increased from 0.75 to 2%. To combat inflation, interest rates are expected to rise further in 2022 and beyond. Some experts predict they could go as high as 4% in this cycle. The latest inflation figures for the first three months of 2022 show a steep rise to 6.9%, with further upward movement expected in the short term. Rising inflation and the upward trend in base rates is affecting property prices and the broader economy.

Impact on house prices

It is fair to say that house price growth in New Zealand has been exceptional over the last couple of years. After peaking at more than 30% year-on-year growth, house prices are expected to show around 2% growth in 2022, a considerable fall from the 26% increase in 2021. With base rates expected to rise up to 4% in the medium-term, house prices in New Zealand are expected to fall by 1.5% in 2023.

An increase in housing supply, an upward trend in mortgage rates and a sluggish economy will bring house prices back to more reasonable levels. However, this new bout of economic uncertainty has seen many traditional banks tightening their short term property finance and bridging loan criteria. Consequently, as one of many non-bank lenders emerging in New Zealand, Alternate Finance is stepping into the breach to fill this growing void.

Very often, high-quality non-bank lenders are grouped in with the high-interest payday lenders, even though there are considerable differences in clientele and how we operate. While attempting to fill a void created by traditional bank uncertainty, Alternate Finance is still appreciative of our role as a responsible lender. Consequently, finance will only be made available where there is sufficient income and security. This is in the best interest of all parties, as providing unaffordable finance serves no purpose.

Property loans

As household incomes come under pressure, we have seen a growing interest in short term property finance, with a bridging loan for house deposits proving particularly popular. As a result, non-bank lender funding is more available to the masses today than ever, but this must still be within a controlled environment.

Short term property finance

While it appears that house prices in New Zealand have peaked in the short to medium-term, many people are still looking to move or carry out renovations. The overcautious approach by traditional banks has prompted many potential clients to look toward non-bank lender funding. This area is still heavily regulated, protecting finance companies and customers alike, but one which offers a greater degree of flexibility than the high street banks.

Providing short term property finance at competitive interest rates over 36 months is proving attractive. Whether looking to cover the cost of renovations over a comfortable period or increase property values and refinance, there are numerous options to consider.

Bridging loan for a house deposit

Even though New Zealand property prices have softened recently, there are a growing number of enquiries for bridging loan for a house deposit. This is a relatively simple but highly effective financial transaction. It allows customers to push ahead with purchasing a new home while awaiting settlement on the sale of their existing property. On the face of it, this is one of the more expensive types of short term property finance. However, while annual interest charges may seem relatively high, the average bridging loan will only last between three and six months.

This is typically more than enough time for existing homes to be sold, with funds used to repay the bridging finance. It is also a helpful way in which homeowners can take advantage of an increase in New Zealand property prices and their equity content to upgrade or downsize, dependent on their financial situation.

Traditional banks vs Non-bank lenders

As we touched on above, we have three financial subsectors in New Zealand:-

• Traditional banks
• Non-bank lenders
• Payday lenders

Alternate Finance is one of the leading non-bank lenders in New Zealand, providing a valuable service to customers stuck between a rock (traditional banks) and a hard place (payday lenders). We take a different approach to the high street banks, offering greater flexibility and an understanding of individual client financial challenges. However, it is essential to reiterate that this service is provided within a heavily regulated framework and our over-arching obligations as a responsible lender.

Target market

In recent years we have seen a divergence of target markets when looking at traditional banks and non-bank lender funding. The more cautious approach by the traditional banks may appear sensible from a business point of view. However, it has removed financial choices for some who still have sufficient income and security. We appreciate that many people will experience financial difficulties during their life; some will be short-lived and others more prolonged. Therefore, while the focus will always remain on income and assets available for security, we now accommodate a broad range of clients.

Range of products

Our range of products takes in everything from personal loans to business finance, a bridging loan for house deposit to funeral funding. We even provide tiny home finance in New Zealand, an emerging trend in the housing market. As property finance criteria continue to tighten on the high street, we expect more interest in our short term property finance services.

Loan interest rates

While the interest rate charged on individual agreements will differ due to personal income levels and available security, the rate will vary between 10.95% and 17.95%. We are honest and upfront with all applications, appreciative of your situation, and realistic about the affordability of finance.

Even though agreements are heavily dependent on income and security, many of our clients can provide a guarantor in the event they were to experience financial difficulties in the future. This offers additional protection, although we would only call upon the guarantor to cover payments in extreme circumstances. This is not a situation we would envisage when considering and ultimately providing short-term finance.

Client relationships

We have a very different outlook to other financial operations and a more long-term approach to client relationships. For example, many clients have recently approached us concerning short term property finance and, in particular, a bridging loan for house deposit. Assuming they can maintain their payments, we may be in a position to offer additional finance as and when required. While the ability to repay loans is essential, we take a long-term approach to customer relationships.

Our flexible approach to financial stability sees us sit down with clients regularly to consider their broader financial situation. We can discuss potential cost savings, consolidation loans, and refinancing options while focusing on long-term improvements in their finances. Customers tend to go for the shortest possible loan duration, even though this may put undue pressure on cash flow. Sometimes, it is better to be a little cautious, taking a longer-term approach with the option of early repayment.

Summary

Positioned between traditional banks and high-interest payday lenders, we offer competitive rates to clients who may struggle to secure finance elsewhere. Some of our customers have experienced financial difficulties in the past. While on the road to recovery, this is not always reflected in the services available elsewhere. We certainly don’t dismiss past financial challenges, but we are realistic and forward-thinking. Those applying for loans are guaranteed an honest and upfront approach.

If we are unable to assist, we may be able to offer additional guidance regarding formal help from the government and any legal options available. We operate in an environment of mutual trust, focus and understanding. Therefore, we don’t automatically dismiss applications because the “numbers are challenging”, instead preferring to discuss additional options at the outset. Some of our customers have been with us for many years, as we grow with their changing financial requirements.