December 25, 2023 at 11:14 AM
What is a Non-bank lender?
Firstly, lets clarify what a non-bank lender is. In the strictest sense of the term, a non-bank lender is a lender who is not a bank, building society or credit union. Non-bank lenders have their own source of wholesale funds and will lend those out with an added margin for profit.
Why do we need a Non-Bank lender?
A Non-bank lender offers funding to purchase a home or investment property for those borrowers that perhaps do not meet the criteria of banks. For instance, you may have adverse credit that banks deem too risky. You may only be self employed for a shorter period than banks are prepared to rely upon for affordability purposes. As banks have to meet high LVR restrictions set upon them by the Reserve Bank of NZ, some Non-bank lenders do not have to adhere as they are not registered banks. Some non-bank lenders are able to lend up to 80% for an investment property while banks can lend up to 65%.
What are the disadvantages?
Non-bank lenders generally charge a higher interest rate than banks. The reason for this is that they are often taking on applications that pose higher risk of default than a traditional bank would accept. They may also take their funding from private investors and so they would want a higher return than say investing in traditional bank.
Non-bank lenders also require a registered valuation more often than not. Non-banks may want a RVR as they may need to rely heavily on the equity of your property should your loan goes into default. A registered valuation would be at your cost. Banks sometimes use a desktop valuation which does not come at a cost.
Non-bank lenders also charge a fee upon settlement. Traditional banks generally do not charge a home loan fee.
Non-bank lenders in most cases do not offer a cash contribution as a traditional bank generally would for a home loan. So, the costs for a Registered Valuation, Solicitor and Moving Costs would have to be paid by you.
Why do we need them?
They do have their place and is a useful lender for clients where traditional banks would not approve their applications.
We only use these non-bank lenders as temporary solutions, when clients personal financial situation or traditional bank policies/ criteria change. We would look to refinance you to a traditional bank so you can enjoy lower interest rates, receive a cash contribution to help with the refinance costs etc..
Non-Bank Lenders are not our first port of call, we would always look at traditional banks for our clients. If we know this cannot be achieved we would then go down the non-bank lender path and help guide you along the way. Many clients use non-bank lenders so it is not something to be afraid of when proper guidance, advice and understanding is provided.