Most people would be surprised at how many people use non bank mortgages these days.
The term “Non Bank Lending“, “Non Bank“, “Bank Alternatives” or “Second Tier Lenders” simply refers to those lenders who are involved in the business of providing finance, but are not the traditional registered banks.
In the past these lenders have been quite a lot more expensive but with lower interest rates they are now an option worth considering.
They are now not much more expensive than your typical bank mortgage, but non bank mortgages are more flexible and suits some situations better than what a bank can offer.
What Are Non Bank Mortgages?
In New Zealand we refer to a non-bank lender as a financial institution that offers credit and loan products but is not a bank.
Non-bank institutions now make up around 2% of the home loan market in New Zealand and they are still regulated by the Reserve Bank of New Zealand.
They are still small when compared to the banks.
The main difference between banks and non-bank financial institutions is that non-banks do not hold a New Zealand banking license and therefore can often offer loans that do not fit within banks normal criteria.
Some common situations are;
- You had had some difficulty proving income – which is common with self employed people. Often if you speak to a bank you will get the wrong advice; whereas good specialist non bank mortgage broker can help. The banks are quite specific in what they want, and at times that is not going to be easy to provide.
- You have some past credit issues – some people refer to this as bad credit home loans and it could be as simple as a default showing on your credit check, a judgement or even a bankruptcy. These are all common reasons to seek a specialised non bank broker.
- You want to buy more rental properties – with the way banks calculate your affordability it often limits how many rental properties you can have. Banks also want to link your properties which is not what most people really want. Often the non bank lenders will keep each property separate which gives you the flexibility.
- Your age means the banks want to limit the loan term – banks want you to pay the mortgage on your home off before you retire. This often means that the loan terms that they use to assess the application is too short and therefore the affordability (loan servicing) will not work.
In most cases the aim was always to refinance to a bank mortgage when it’s possible, bit now that the rates are not much higher then people are not concerned about having non bank mortgages for longer periods of time.
Non Bank Mortgages Are Quite Normal
In many countries the mortgages are more like the non bank mortgages that we see here.
In the United States, a conforming mortgage is one which meets the established rules and procedures of the two major government-sponsored entities in the housing finance market (including some legal requirements). In contrast, lenders who decide to make nonconforming loans are exercising a higher risk tolerance and do so knowing that they face more challenge in reselling the loan.
Many countries have similar concepts or agencies that define what are “standard” mortgages.
Regulated lenders (such as banks) may be subject to limits or higher-risk weightings for non-standard mortgages.
For example, banks and mortgage brokerages in Canada face restrictions on lending more than 80% of the property value; beyond this level, mortgage insurance is generally required.
In New Zealand our banks are regulated by the Reserve Bank and must adhere to the rules that are set; however non bank lenders are able to work outside of the rules but all lenders in New Zealand must also meet the lender responsibility principles, meaning make reasonable enquiries before entering into a loan or taking a guarantee to be satisfied that the credit provided will meet the borrower’s needs and objectives and the borrower or guarantor will be able to make the payments under the loan, or comply with the guarantee, without suffering substantial hardship.
A number of the non bank lenders in New Zealand are also funded by the banks, and so the banks do ensure that they cannot do lending that the banks cannot.
So for these reasons non bank mortgages are not too much different to what the banks offer … they are quite normal and as a borrower you are still offered good protection here.
It’s Important To Know Your Options
You can make your own enquiries and decisions and work directly with the lenders, or like many Kiwis you can work with a mortgage broker who can assess your lending requirements and situation before helping source the finance from the most suitable lender.
We may be known throughout New Zealand as leading non bank brokers, but we also deal with the banks as well.
The role of a good non bank broker is to find you the best options and therefore they need to be well informed on all options.
Tell us your story and we can advise you about both the bank mortgages and non bank mortgages.
