Non-bank lending for mortgagesThe 40% deposit requirement banks impose on investors means that non-bank lenders are coming into their own. Such lenders have always been there in the background, but from my perspective the case for using them for mortgages hasn’t been particularly compelling for the vast majority of people. Until now.

The non-bank sector is starting to shine because the gap being served has really opened up now that the banks have been forced to dial down their investment related mortgages.

They don’t just do mortgages for rental property though and I find it’s best to think of these non-bank lenders in two groups – second tier and third tier lenders:

Second tier mortgages

Sitting just behind the banks in terms of how they approach and assess loans, second tier lenders may seem like their lending policies are ‘easier’ than banks, but that’s not really true. They’re just doing things the banks won’t because they’ve set their criteria differently.

Resimac and Liberty are the main players at the moment. They do mortgages against residential property in the same way that banks love to.

Interest rates are typically 0.5% higher than the banks which is still compelling pricing.

In general, we find these lenders suit people with the following characteristics:

  • You want to borrow 80% on a rental property/s
  • You’re self-employed and don’t quite fit the banks’ assessment criteria
  • Your credit record is poor

Third tier mortgages

Third tier lending is for people with a specific, short term reason for borrowing who have equity to burn. This tier supports borrowers who banks have no interest in and who don’t quite fit in the second tier.

A typical client who fits this kind of lender includes:

  • Property developer – think subdivisions from 2 to 100 sections
  • Debt consolidation and a tidy up, so you can go back to a bank
  • People who cannot easily demonstrate a steady income stream or who have an unusual income source
  • Leaky building fix ups
  • Super crappy credit
  • Bridging finance

In terms of lenders, there are some long established players here and they’re a great option in specific cases. Be prepared to pay chunky fees with interest rates 3-5% above the bank. You need to have at least 30% equity in most cases, and because these loans often last for no more than a year you need an exit plan too.

With the RBNZ rule change we (mortgage brokers) have become even more valuable than before because we can provide options. Have you been to the bank for a particular project and found the bank gave you a funny look, squirmed a little and then tried not to laugh as they said no to you. Why not call us?

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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