More borrowers make the switch to non-banks

As rising interest rates make life tougher for borrowers, non-bank lenders are reaching out to mortgage advisers to offer flexible, tailored finance solutions that suit their clients’ needs

CHALLENGING ECONOMIC conditions are testing the mettle of mortgage advisers and their clients. Real Estate Institute of New Zealand data shows the median property sale price fell 12.2% nationally for the year to January 2023, and sales declined 39%. With inflation still above 7%, the Reserve Bank of New Zealand continues to lift interest rates as it tries to drive it down. About 90% of home loan borrowers are on fixed rates, and thousands of people are due to roll off low fixed rates over the next 12 months to face much higher rates. So, as the property market declines and interest rates rise, borrowing capacity reduces, making it harder for people to get access to finance.

Boyce says one of the key benefits that non-banks offer is flexibility and the hard work they do to tailor solutions to individual customers. “Non-bank lenders are known for their commitment to service and work hard on turnaround times. They work closely with the adviser to help support the right outcome for them and their customer,” he says. Avanti Finance is currently working on a number of product initiatives that it hopes the market will appreciate and value. Burgess says credit decisioning at the main banks is heavily influenced by risk-grade models. “We know things don’t always fit the box, so non-bank funders like FMT take a more common-sense approach to their credit decisioning processes and have the added benefit of generally being more timely. We can ringfence a transaction to provide a suitable structure and generally assess in isolation without the need to group all activity.” Non-banks are also pragmatic, says Burgess, asking questions such as: Does this deal make sense? Is it good for the client and funder? Is the exit strategy acceptable? Can we mitigate any perceived risks? “If the key metrics of the deal can be ticked and we’re satisfied with the conditions, then we have the ability to provide finance. We can also provide interest-only or capitalised-interest options.”

Rolls says Basecorp is exclusively focused on the adviser channel, which makes up around 95% of its loan originations. “So as the adviser channel expands here, we expect to benefit similarly from the growth as a small proportion of these borrowers inevitably seek a non-bank option. We’re a huge cheerleader for the channel.” While Basecorp is a panel lender with most of the aggregator groups, and it advertises within adviser channels, word of mouth continues to remain a key way to boost engagement with advisers. “New Zealand is a small place, and our reputation has, and always will be, crucial to us,” says Rolls.

Burgess says advisers will also appreciate a significant point of difference at FMT, with no clawback on referred business. “We understand the deals and the need for a quick turnaround in certain circumstances.” Jackson says Resimac is unique in that “we’re big enough to be a contender but small enough to be nimble”. That means offering an agile response to market conditions and creating innovative products and services that meet customers’ needs in real time. Resimac’s introduction of fixed rates to help give certainty to specialist borrowers is a recent example, says Jackson, as is products for multi-property investors.

Recent figures from Moody’s estimate that mortgage advisers’ market share of new residential loans in New Zealand is 55–60%, up from about 40% in 2017. Jackson says most of Resimac’s mortgages originate from advisers, as they do at other non-banks. But knowing there will always be borrowers who prefer to deal directly with a lender, Resimac also operates a direct-to-consumer channel. “We were the first non-bank to gain a Class Three FAP licence, enabling our team to work directly with consumers.” One of the benefits is that Resimac can keep an “ear to the ground” and hear from borrowers directly, learn what borrowers want and use the feedback to develop new products, Jackson says. “The knock-on effect for advisers is that they are then able to recommend our products that are best fit for specific client niches as they've been designed with the customer in mind.” Jackson says the adviser channel is of tremendous importance to Resimac, and it does all it can to help advisers. This includes offering training, marketing and sponsorship support; building products in response to customer and adviser feedback; providing online and trade media promotion to educate advisers; and hosting events for advisers to network at third-party events and conferences. “Our highly skilled BDMs provide essential support to advisers in helping them with client scenarios and product information.”

For over 26 years First Mortgage Trust (FMT) has been helping New Zealanders grow their wealth. Today, FMT manages over $1.5bn and is the country’s largest first mortgage non-bank lender. Since 1996, FMT has helped clients with a diverse range of property finance in the residential, commercial, industrial and retail property sectors in New Zealand. Its experienced lending team are solution focused, providing prompt decision-making, and have the local knowledge to help clients move ahead with confidence. FMT now has offices in Tauranga, Auckland, Wellington and Christchurch with 58 staff members, and is continuing to grow to meet significant market demand.

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Avanti Finance has been working with introducers, advisers and brokers to provide flexible options for over 30 years, helping thousands of New Zealanders get into new homes, new cars, start new businesses or consolidate their debt. In an industry in which box-ticking is the norm, Avanti Finance does things differently. It looks at the context and background of the borrower, not just the borrowing, because it knows that sometimes 'life happens'. Talk to Avanti today about its broad range of lending products, including long-term first mortgages, caveat loans, bridging loans, car loans, business loans and personal loans. We’d love to help.

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Similarly, Burgess says advisers and aggregators remain significant to FMT’s business model. It employs BDMs in the main metros who work alongside local advisers and aggregators. “We’re a relationship-based business; we work with our clients to help them achieve their goals,” he says. “We also maintain key sponsorships with leading aggregator businesses and strive to add value with our adviser interaction through conferences, webinars and training sessions.” Burgess says there is an increasing need for advisers in both the residential and commercial space. Often borrowers don’t have a great deal of knowledge about non-bank lenders and their areas of expertise, “meaning that advisers really come into their own”.

Resimac is a residential property lending specialist. As an innovative provider of home loan solutions, it has the flexibility to meet the needs of the New Zealand homebuyer. Its parent company, Resimac Group Ltd, has been in operation since 1985 and in New Zealand since 2012. Resimac is a pioneer of alternative lending with a focus on delivering competitive products and quality customer service. Resimac is committed to being a responsible lender directly to customers, and recognises the importance of ensuring it conducts business in an ethical and responsible manner. It acknowledges its obligations to its customers under the Credit Contracts and Consumer Finance Act 2003 (as amended from time to time), the responsible lending principles and the Responsible Lending Code.

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Boyce says non-banks need to be active in the marketplace, have regular and relevant conversations with advisers, understand their requirements and explain what non-banks do. “This includes participating in professional development days, discussing and workshopping deals, being part of their conversations – listening to what they need and gathering feedback so that we can constantly improve.” Basecorp has steered away from complex product sets requiring significant adviser education, Rolls says. “Instead, our preference is to offer vanilla mortgage products that are easily understandable by advisers. This approach is in line with our focus on simplicity in everything we do. Ultimately, we think it’s about building trust and confidence in the wider non-bank sector, and we continue to aim to contribute to this through our lending interactions.” Burgess says visibility and awareness are key. “There’s more awareness around non-bank lenders and their offering, which is fantastic for the overall industry. FMT have strong NZ-wide representation through our BDM network, and we actively participate in adviser training on a one-to-one basis through webinars and at conferences with market updates.” FMT sees further opportunities for more advisers to add non-bank lenders to their suite of products and conversations to enable provision of a full-service proposition for their clients. Jackson says there’s no shortage of support for advisers being offered by Resimac and fellow non-banks. “It’s essential that we continue to provide the adviser community with as much support, resources and education as we can.” One of the common challenges advisers have reported is that clients can sometimes be averse to going with a lender that isn’t a well-known bank. “We invested in a big mainstream marketing push last year to build not only our brand but also awareness of non-banks in general to consumers,” says Jackson. “This included a ‘letter to the banks’, which ran as a tongue-in-cheek print ad in the main broadsheet newspapers to pull them up on how they implemented changes to the CCCFA.”

“We know things don’t always fit the box, so non-bank funders like FMT take a more tailored approach to their credit decisioning processes and have the added benefit of generally being more timely”

Sam Burgess, First Mortgage Trust

Industry experts

Craig Rolls

Basecorp Finance

Luke Jackson

Resimac

Sam Burgess

First Mortgage Trust

Ian Boyce

Avanti Finance

Industry experts

Ian Boyce joined Avanti Finance in November 2022 as general manager property. He brings to the business almost 30 years of senior leadership experience in financial services, banking and insurance.

Avanti Finance

Ian Boyce

Sam Burgess is head of lending at First Mortgage Trust. He has over 16 years of experience in the banking industry and has held roles across the property finance, private banking and commercial and business banking sectors.

First Mortgage Trust

Sam Burgess

Luke Jackson leads a growing operation that continues to devise new solutions to suit customers’ needs. He joined Resimac as head of New Zealand in 2019. Jackson has been part of the banking and financial services industry since 1997 across retail, business, corporate and commercial segments, including working for major trading banks as well as alternatives to banks. He played a lead role in building New Zealand’s peer-to-peer fintech market when he was CEO of the nation’s largest peer-to-peer mortgage platform.

Resimac

Luke Jackson

Craig Rolls is head of lending and a director of the board at Basecorp. He has had over 25 years’ experience working at Basecorp through multiple lending cycles, and over 35 years in the finance industry. Rolls is a key contact at Basecorp for mortgage advisers and is a well-known figure in the non-bank industry. He is known for his ability to offer prompt, personalised feedback on deals in a manner that puts both the customer and adviser first.

Basecorp Finance

Craig Rolls

Basecorp Finance

Luke Jackson

Resimac

Sam Burgess

First Mortgage Trust

Ian Boyce

Avanti Finance

Industry experts

Ian Boyce joined Avanti Finance in November 2022 as general manager property. He brings to the business almost 30 years of senior leadership experience in financial services, banking and insurance.

Avanti Finance

Ian Boyce

First Mortgage Trust

Sam Burgess

Resimac

Luke Jackson

Basecorp Finance

Craig Rolls

Ian Boyce

Avanti Finance

Sam Burgess

First Mortgage Trust

Luke Jackson

Resimac

Craig Rolls

Basecorp Finance

Craig Rolls is head of lending and a director of the board at Basecorp. He has had over 25 years’ experience working at Basecorp through multiple lending cycles, and over 35 years in the finance industry. Rolls is a key contact at Basecorp for mortgage advisers and is a well-known figure in the non-bank sector. He is known for his ability to offer prompt, personalised feedback on deals in a manner that puts both the customer and adviser first.

Basecorp Finance

Craig Rolls

Resimac

Luke Jackson

First Mortgage Trust

Sam Burgess

Ian Boyce joined Avanti Finance in November 2022 as general manager property. He brings to the business almost 30 years of senior leadership experience in financial services, banking and insurance.

Avanti Finance

Ian Boyce

Basecorp Finance (Basecorp) is a non-bank mortgage lender, operating since 1997 and headquartered in Hamilton. Today, Basecorp has a loan book of more than $1.2bn and is one of the leading non-banks owned and operating in New Zealand. Basecorp’s core product offering is primarily long-term (and some short-term) first-ranking residential mortgages to consumer and non-consumer clients. Basecorp’s purpose is to finance ‘everyday Kiwis into residential housing’. Its small but highly experienced team has a proven track record in managing credit risk through many economic cycles. Basecorp originates over 95% of loans through adviser channels and has successfully established a strong reputation of being transparent and fair within these channels.

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“Non-bank lenders are known for their commitment to service and work hard on turnaround times. They work closely with the adviser to help support the right outcome for them and their customer”

Ian Boyce, Avanti Finance

“Resimac has experienced growth in enquiries from multi-property investors frustrated with the policy of the major lenders. We saw the opportunity and built unique products specifically for these borrowers”

Luke Jackson, Resimac

“As the adviser channel expands here, we expect to benefit similarly from the growth as a small proportion of these borrowers inevitably seek a non-bank option. We’re a huge cheerleader for the channel”

Craig Rolls, Basecorp Finance

Home loan growth

While non-banks’ market share of home loans remains small compared to the banks’, it’s been growing. RBNZ figures show that between December 2020 and December 2022 non-banks' share has grown from 1.18% to 1.73%. In December 2020, the total value of non-banks’ housing loans was $3.55bn, jumping to $5.04bn in December 2021 and $6bn in December 2022. Avanti Finance general manager property Ian Boyce says that over the past 12 months non-banks grew their share of the New Zealand home loan market by 19%, but their overall share remains low at under 2%. “The growth has slowed over the past few months as the market has softened,” he says. Luke Jackson, general manager of Resimac New Zealand, says alternatives to banks are steadily growing market share as more advisers and consumers realise the flexibility non-banks offer.

Basecorp Finance head of lending Craig Rolls says that after a long period of expansion over the last five years, non-bank system growth has been more subdued since August 2022. “While higher interest rates and lower property market transactions inevitably play their part, other factors such as a more uncertain wholesale funding market – and higher margins – and less resilient funding structures in the non-bank sector also contribute,” says Rolls. “We see growth in the non-bank market continuing to remain at lower levels while these factors remain in place, albeit retaining a significant and important role for advisers where a mainstream bank loan is unavailable.”

Burgess says FMT's loan book is well diversified. “We actively manage our portfolio to ensure this is always the case. We’re also well spread geographically; we find different regions have their own unique strengths and weaknesses.” FMT is happy to look at all creditable commercial opportunities, including residual stock funding against completed property – residential, industrial or commercial; equity release against residential or commercial assets; investment purchases; bridging finance; construction and development finance (with capitalised interest), generally against fewer covenants than a mainstream funder would require; and subdivisions. “If sell-down of the asset and repayment is not the preferred exit strategy, we understand bank parameters and will ensure our end funding position meets acceptable bank guidelines,” says Burgess. Boyce says Avanti Finance is still seeing activity from most customer segments. “The largest cohorts would be self-employed – those looking for top-ups that potentially don’t meet current main bank criteria and turnkeys,” he says. “We offer commercial finance through GetCapital, mainly working capital and asset finance.”

“The combined impact of rising living expenses and interest rates has made borrower affordability more challenging and reduced maximum loan sizes,” he says. “This is very much in line what the Reserve Bank is looking to achieve with their rapid official cash rate actions, and it’s an environment where a degree of caution prevails generally across all lending sectors.” Despite this, Basecorp continues to see enhanced opportunities for the sector as advisers look to non-banks for personalised and flexible solutions in a more difficult environment. “We think this is particularly the case as the number of declines at mainstream banks increase. While the non-bank industry won’t always be able to assist, increased deal flow does offer increased opportunities to demonstrate value and relevance,” says Rolls. Jackson says advisers and clients have turned to Resimac as they seek skilled lenders who can cater for specific niches, such as specialist customers and multi-property investors.

Strongest customer segments

Growth of the mortgage adviser channel

Boyce says Avanti Finance is effectively a 100% adviser business, and advisers are its most important partners. “I’m sure our advisers value that commitment to them,” he says. “We have a network of business development managers who are active in the market, meeting and engaging with advisers every day. We actively participate in professional development days and support conferences. “We are there for conversations, listening to our advisers and gathering feedback for improvement. They are our lifeblood and recognised through every part of our business. We also use topical newsletters to engage with our advisers and keep them informed on the latest developments.”

Rolls says Basecorp has always been focused on building a balanced book by appealing to a broad base of customers, ensuring it can retain the confidence of its stakeholders and investors and regularly issue notes in the capital markets. “However, we are known as having a particular strength with deals of a more difficult nature in residential property, whether commercial-sized investors, traders, complex circumstances or deals requiring more work.” For Resimac, it’s not so much about which are its strongest customer segments but about “knowing where we best fit in the market and providing best-fit products for those niches”, Jackson says. “One of these segments is owner-occupiers making their first or second investment property purchase. These are often mum-and-dad investors. Our bundle product has proven the best fit for this type of customer.” Another best-fit customer for Resimac is the self-employed borrower, Jackson says. “While banks typically request two years’ worth of financials, we don’t think this is always a fair reflection of their creditworthiness as a borrower, particularly given we’ve just come out of COVID. This is why we have our alt-doc product, which can look at the self-employed borrower’s more recent earnings.” The non-bank can also help credit-challenged borrowers: while the pandemic and adverse weather may have impacted their credit history and made it hard for them to access loans from the banks, Resimac has specialist products specifically for these types of borrowers who have recently improved their financial position.

Its response to the CCCFA changes was also a classic example of how it better serves advisers. Jackson says that while the banks’ “sledgehammer approach” was onerous for borrowers, Resimac identified a way to balance regulatory obligations with the needs of advisers and customers. “These responses are possible because Resimac has autonomous New Zealand management, enabling the business to be more in tune with the needs of Kiwis. Resimac also has the strength of a multinational, which keeps our funding costs low.” Rolls says the financial environment continues to become more complex and bank lending matrices more rigid, driven by the CCCFA and other compliance requirements. “At Basecorp, we remain focused on flexibility and simplicity – and doing this all in a timely manner with quick turnarounds,” he says. “We also continue to put a human touch on lending at a time when mainstream banks have largely abandoned this. With our stable lending team, advisers can deal regularly with familiar faces as they work through a mortgage application.”

In the current market, banks have quite high covenants around pre-sales and interest cover, which necessitates significantly more equity required in a transaction, says Burgess. “Provided we get comfortable with our assessment of the client, location, property and exit, then we have the ability to individually structure a funding proposition to suit, based on significantly less covenants and reporting.” Boyce says all these factors have seen the market size reduce over recent months. “It makes the role of the adviser even more important as they help their customers navigate these challenges. Non-banks are an important part of the solution as we look to carefully tailor solutions for individual customer situations,” he says. Rolls says that despite having significant funding capacity, Basecorp has seen lower levels of demand for credit.

But this is where non-banks come in – they have a different model from banks and can offer alternative options for mortgage advisers and those clients who don’t fit the model of a typical bank borrower. Non-banks have a small but growing presence. NZ Adviser talks to representatives of four non-banks to find out how they can assist advisers and their clients.

“Resimac played our part in this growth a number of ways,” Jackson says. “Notably, we implemented a common-sense response to the CCCFA changes, which involved using benchmarking to assess customers’ expenses.” He says it was important for Resimac to find a solution that worked for advisers and consumers while still meeting its obligations, and the non-bank’s approach was later validated by the Ministry of Business, Innovation and Employment as an acceptable interpretation of the legislative changes. “Resimac has experienced growth in enquiries from multi-property investors frustrated with the policy of the major lenders. We saw the opportunity and built unique products specifically for these borrowers, and these products have been exceptionally well received. These multi-property investors have grown to be about half of our total lending volume.”

NZ Adviser asked the non-banks how rising interest rates, high inflation, loan refixing and reduced borrowing capacity were affecting them. First Mortgage Trust (FMT) head of lending Sam Burgess says these factors, and more, are contributing to main banks operating under conservative credit settings. “This is a positive for First Mortgage Trust and other non-bank funders, as quality main bank borrowers are looking for alternative providers for their financing solutions,” he says. “FMT are short-term funders; our loans are generally between one to two years, and we always ensure there is an acceptable exit strategy, so our transactions tend to be very transaction specific.”

Higher interest rates and inflation

Non-banks’ value proposition

Educating the market about non-banks

RBNZ Non-bank lending institutions: Sector lending, January 2023

slower Growth in non-bank housing loans

DEC 2020

dec 2022

Dec 2021

$1bn

$2bn

$3bn

$4bn

$5bn

$6bn

Yearly growth in value of non-banks’ housing loans

41.8% increase

18.8% increase

$3.6bn

$5.0bn

$6.0bn

Source: RBNZ, KPMG Financial Institutions Performance Survey, Non-Bank Review of 2022

Value of non-bank lending stays strong across sectors

Non-bank lending by sector, year to Sept 2022

Oct 21

NOV 21

DEC 21

JAN 22

FEB 22

MAR 22

APR 22

JUN 22

JUL 22

AUG 22

SEP 22

MAY 22

2bn

4bn

6bn

8bn

10bn

12bn

14bn

16bn

18bn

20bn

$22bn

Personal - Non-Banks

Housing - Non-Banks

Business - Non-Banks

8.0

6.0

6.1

8.4

6.0

6.1

7.9

6.0

7.9

6.0

6.1

7.8

6.1

5.7

7.8

6.0

5.9

7.4

6.1

5.4

7.8

6.1

5.6

7.5

6.1

5.1

7.5

6.1

5.2

7.3

6.1

4.7

7.4

6.1

4.9

Source: RBNZ, KPMG Financial Institutions Performance Survey, Non-Bank Review of 2022

Value of non-bank lending stays strong across sectors

Non-bank lending by sector, year to Sept 2022

Oct 21

NOV 21

DEC 21

JAN 22

FEB 22

MAR 22

APR 22

JUN 22

JUL 22

AUG 22

SEP 22

MAY 22

2bn

4bn

6bn

8bn

10bn

12bn

14bn

16bn

18bn

20bn

$22bn

Personal - Non-Banks

Housing - Non-Banks

Business - Non-Banks

8.0

6.0

6.1

8.4

6.0

6.1

7.9

6.0

7.9

6.0

6.1

7.8

6.1

5.7

7.8

6.0

5.9

7.4

6.1

5.4

7.8

6.1

5.6

7.5

6.1

5.1

7.5

6.1

5.2

7.3

6.1

4.7

7.4

6.1

4.9