As mortgage brokers we use non-bank lenders and it seems obvious that more people would use them if they understood how they work differently to the banks.
Not All Mortgage Brokers Understand The Benefits
Unfortunately, when many mortgage brokers first get into the business are bombarded by the big banks, and almost all new mortgage brokers will write their first loan with a bank, and then of course continue to place most home loans with a bank as the preferred lender.
The banks know that mortgage brokers on average will only use up to six lenders on a regular basis, so by giving extra support to new mortgage brokers they are ensuring or at least trying to ensure that they do not start using non-bank lenders.
Why Top Mortgage Brokers Use More Lenders
Many mortgage brokers with 10 years or more experience still ask: ‘How do I explain to people why a non-bank they have never heard of is good for their situation?’
Non-bank lenders not only have to tell a compelling story to the consumer, but they also need to teach the mortgage broker why a non-bank product is as good as a bank product.
We have all seen the massive profits the big Australian banks are making, and in many cases we should congratulate any business on making a large profit; however these profits should not come at the expense of you – the consumer.
Non-banks obviously don’t have the same-sized budget to promote their products and therefore they are often misunderstood and thought of as a “last resort” for those occasions when the banks say “no” but these days many non-bank lenders actually provide a better option, or in some cases the only option.
Most of the top mortgage brokers will have access to banks and non-bank lenders and will know the types of situations that suits each.
The Differences With Non-Bank Lenders
Non-bank lenders compete with banks and the home loan market in New Zealand is a very competitive market.
To compete in any market you need to either have a price advantage or a real point of difference that your customers want.
With home loans the price is the advertised mortgage interest rate so it is easy to see which lenders have the lowest rates, but understanding some of the other differences is not quite as easy.
Let’s consider some of those differences where non-bank lenders have an advantage;
Low deposit home loans – in New Zealand the banks have limitations set by The Reserve Bank which restricts the volume of low equity or low deposit lending they are allowed to do. The non-bank lenders are not covered by those rules and therefore are still able to offer low deposit home loans and importantly will offer pre-approvals for home loans where there is less than 20% deposit.
Using 2nd mortgages – there are cases where the bank or non-bank lender is not able to offer a 1st mortgage to the required amount but the additional money required may be raised with a 2nd mortgage. Often banks are unable or unwilling to allow a 2nd mortgage where most non-bank lenders are quite comfortable with these as long as the borrower can afford the repayments. Of course in most cases the requirement for a 2nd mortgage is going to be for a limited time.
Deposits – the general bank rule says a borrower must have a genuine saved deposit which can prove difficult for first home buyers and many self-employed people who have invested in their businesses rather than saved in the traditional way. Non-bank lenders tend to allow deposits from any source (legal source) when the banks might not.
Credit issues – all lenders will check a borrowers past credit history normally by getting a Veda check which looks back 5-years (and in some cases longer) and reports on past enquiries and lists defaults, collections, judgements and any bankruptcies. While most people would not intentionally have any credit issues sometimes things happen in life that cause debts to be listed with Veda (previously Baycorp) and even small blemishes can affect the ability to borrow money. Some of non-bank lenders understand this is the case and will ignore smaller credit issues and those since paid and over 2-years old and can still provide home loans to those people with more recent or more sizable defaults by adding a risk premium to the interest rate.
Proving income – the banks tend to have very set ways to measure income and this can make it especially difficult for self-employed people or people with incomes that are complex or seasonal. Non-bank lenders are used to dealing with people whose incomes do not ‘fit the box’ and can be more flexible. They can assess income on a case by case basis which makes ‘proving’ income easier and therefore allows a greater number of people to get home loans.
The security – lenders use the property as security for the loan. In most cases a bank will used any property that they can for security and therefore if you own and have multiple properties financed with the same bank they will take all of those properties as a blanket security. This often seems okay at the time you get the mortgage, but can cause a lot of problems if you have a financial issue, an issue with a property or want to sell a property. Non-bank lenders (and some banks) do not link the properties and therefore as the property owner you retain greater control and can manage the finances to suit your circumstances. This is a key reason that many property investors will use non-bank lenders in preference to financing multiple properties with the same bank.
Some mortgage brokers have seen the opportunity with non-bank lenders to provide finance when the banks say “no” and these are some of the differences that make non-bank home loans the best or only option for some borrowers.
Of course, in man y cases the banks might say ‘yes’ and still the non-bank option might be better.
Most people expect that a bank would have the lowest mortgage rate.
As a mortgage broker we monitor interest rates and it not always the banks that have the lowest mortgage rates.
If we look at the floating interest rates today (26th March 2015) we see that non-bank lenders like General Finance are offering 5.75%, Resimac Home Loans are offering 6.59%, Napier Building Society are offering 5.80% and this compares to ANZ and BNZ at 6.74%, ASB at 6.75%, Kiwibank at 6.65% and Westpac at 6.59%.
The banks advertised rates are generally not any cheaper.
You Really Should Know This Stuff
Many mortgage brokers and bank staff have not considered the differences between the big banks and smaller non-bank lenders, so how would you be expected to know?
Of course if you talk to someone at the bank they are going to promote that bank above anyone else and that is the staff member’s job. The biggest problem is that those staff members often don’t know much about the other options available and assume that non-bank lenders are inferior or more expensive than the banks.
You really need to speak to a mortgage broker that is working with both banks and non-bank lenders on a daily basis and who can therefore ensure that you get finance with the lender (bank or non-bank) that suits you. Most good mortgage brokers will provide quality advice and have access to a range of lenders.
As well as sourcing the home loan for you, as a good mortgage broker I will review your total financial situation and home loan now and over time to ensure that you remain with the most suitable lender as your circumstances change.
Contact me; 021 984340 or email: email@example.com
Non bank lenders are one of the options that we can offer.