In Partnership with

Leveraging the non-bank edge

As interest rates remain high, non-banks are becoming a crucial alternative for borrowers shut out by traditional lenders, offering innovative financial solutions amid New Zealand’s evolving lending landscape

Ian Boyce

Avanti Finance

Industry experts

Luke Jackson

Resimac

Satyan Mehra

iConsult

Campbell Smith

Pepper Money

Ian Boyce’s experience spans 25-plus years in financial services, banking and insurance. This includes leading major business units at ASB Bank, most recently as its GM business banking. In this role, he was responsible for profitability, growth and increasing market share, as well as risk outcomes, employee experience, customer experience, strategy, transformation, and digital solutions. Boyce joined Avanti in November 2022 and leads a team of mortgage lending specialists who work hand in hand with mortgage advisers to help New Zealanders realise their property ownership dreams.

Avanti Finance

Ian Boyce

Luke Jackson has been part of New Zealand’s banking and financial services industry since 1997. His experience spans the retail, business, corporate and commercial segments, including involvement with major trading banks as well as the non-bank market. He played a senior role in the establishment of New Zealand’s peer-to-peer fintech market as CEO of the country’s largest peer-to-peer mortgage platform. Jackson is passionate about the contribution non-banks make within the New Zealand finance market. He current heads up Resimac NZ as its general manager, a role he has held for the last five years.

Resimac

Luke Jackson

Satyan Mehra is director and chief adviser at iConsult, which specialises in finance solutions for small to medium-sized businesses, property investors and developers. He has over 10 years’ experience in banking, having worked at ANZ and BNZ across retail banking, business banking, internal audit, external reporting and more. Mehra has also been involved in Pizza Hut franchising, early childhood education, the accommodation sector, as well as property investment and development.

iConsult

Satyan Mehra

Campbell Smith is the country head for Pepper Money New Zealand. With a background of over 20 years in the banking and financial services industry, including in various commercial functions across mortgages and asset finance, he has substantial executive leadership, financial and operational experience. Prior to joining Pepper Money, he was director and country manager at LeasePlan, and he has also worked at organisations such as Westpac and Turners Automotive Group.

Pepper Money

Campbell Smith

Connie Wang is the founder and director of Prosperity Finance, New Zealand's leading mortgage advisory firm. With over 15 years in the lending industry, Wang has expertly steered her company for a decade, assisting numerous clients in securing their homes and dream properties. Recognised as a Top Adviser and one of NZ Adviser’s Elite Women in 2022, her leadership has propelled Prosperity Finance to earn a Top Brokerage award. She leads a vibrant team of eight, has broadened the company’s services, and is dedicated to enhancing customer value with every transaction.

Prospertity Finance

Connie Wang

“With our view that interest rates are either at or near the current peak, we moved quickly to reduce our interest rate buffer, aiming to assist customers to demonstrate affordability”

Ian Boyce, Avanti Finance

THERE'S NO escaping the fact that the longer interest rates remain at high levels, the more people may fail to qualify for a loan from a traditional lender. In such an environment, it is non-banks and the advisers who use them that stand to benefit from out-of-the-box solutions for borrowers who might otherwise be locked out of finance for a house, investment, business or other purpose. NZ Adviser recently sat down with leading non-bank lenders Resimac, Pepper Money, Avanti Finance and friends at Esther Restaurant in Viaduct Harbour, Auckland, to discuss the prospects for the non-bank sector; how a changing economy affects lending markets; advisers’ evolving attitudes to both banks and non-banks; and the importance of relationships in keeping the system running and responsive to real-world demands. Resimac was represented by general manager Luke Jackson; Pepper Money by New Zealand country head Campbell Smith; and Avanti Finance by general manager property Ian Boyce. They were joined by two brokers to provide a different perspective: Prosperity Finance founder and director Connie Wang and iConsult director and chief adviser Satyan Mehra. While the non-bank market in New Zealand is still relatively small, in the years since the onset of the pandemic, it has slowly grown in areas where mainstream banks used to be the only game in town.

“The number of lenders that are available, the number of options that are available, is growing, which is good in many ways … the non-bank market seems to be growing”

Satyan Mehra, iConsult

“The thing that’s differentiating non-banks from banks is skill. By and large, [banks] want vanilla transactions, and they want to do them as smoothly as they can – but not everyone’s a vanilla transaction”

Luke Jackson, Resimac

“You see some bank staff getting hung up on something, dragging the deal out for weeks. That’s frustrating,” said iConsult’s Satyan Mehra. “What do you do? You just place the [customer] to non-bank.” When the deal is non-vanilla, specialist lenders such as Pepper Money, Avanti and Resimac are in their element, and more advisers are realising the advantages. “Advisers are turning to non-banks to assist their clients who don’t fit the generic, salaried applicant that banks prefer,” Smith said. “In the same way, more borrowers with diverse financial backgrounds or self-employed income are looking for a lender that understands them and is willing to look at their unique situation.”

“Despite the current challenges found in the New Zealand environment, the non-bank sector has continued to adapt to the market, diversify our funding sources and enhance our approach to risk management”

Campbell Smith, Pepper Money

It’s anybody’s guess as to when the Reserve Bank of New Zealand will start to cut interest rates, but the current rates plateau has already prompted non-banks to reduce their buffers in anticipation of an eventual cut, while major banks are still hedging their bets. “With our view that interest rates are either at or near the current peak, we moved quickly to reduce our interest rate buffer, aiming to assist customers to demonstrate affordability,” said Ian Boyce from Avanti. “We all know it’s going to start tracking back, so [it’s about] how can you move quickly back to the agile world again to really help customers.” Non-banks have also been quick to adjust to the recent policy changes to interest deductions for investment properties. “It’s about being as agile as you can, whilst operating within risk appetite and regulatory frameworks,” said Boyce.

While vanilla deals hinge on features like rates and cashback offers, the deals non-banks excel at are done with a toolkit that regular banks lack, and using that toolkit naturally comes at an extra cost. “I’m not a rate-shopping service adviser. So you can expect me to add value, but you can’t expect me to just simply shop for you. [Advisers should] bank on the value proposition; that’s where you win the client, and the client will be sticky,” said Mehra. Jackson agrees that it isn’t appropriate to compare main bank services with those of non-banks, because banks are largely unable to service the kinds of deals that non-banks fund.

“What separates the non-banks from the banks is that [when] the markets change, the legislation changes, regulations change or interest rates change, with non-banks the size they are, they can adapt quickly,” said Resimac’s Luke Jackson. Indeed, this adaptability is the ‘secret sauce’ non-banks bring to the table that traditional banks lack – it’s a common ingredient across the non-bank sector that allows it to shine, even in a tough economy. “We remain confident in the New Zealand housing market and the resilience of borrowers because, despite the current challenges found in the New Zealand environment, the non-bank sector has continued to adapt to the market, diversify our funding sources and enhance our approach to risk management,” said Campbell Smith from Pepper Money.

Wang recently had a couple going through a separation who needed to renovate their property before selling it, to maximise its value. “Due to their situation, the bank wouldn’t give them a loan to do the reno. But when we went to a non-bank lender, we got approval in two days, and now the clients are happy.” To be sure, standard homes loans are essentially locked in with the majors. “We’ve got the fixed rate market with cashbacks, and the banks have kind of got that area locked down – that vanilla, easy scenario with two incomes, one house,” said Jackson. But as society continues to diversify in the post-pandemic world, the image of a non-bank borrower as a person with weak credit history who couldn’t get a loan at a bank is becoming out of date. “The non-bank story was ‘when the bank says no, come and see us’. But the truth is, now, it’s ‘if you’ve got an astute property investor, come and see us’, or ‘if you’ve got an offshore borrower, come and see us’. There are actually niches of prime, bankable clients who are frustrated with the lack of skill in the banks,” said Jackson.

Advisers and non-bank lenders agree – banks just aren’t what they used to be in terms of the skill set they command. “The thing that’s differentiating non-banks from banks is skill. By and large, [banks] want vanilla transactions, and they want to do them as smoothly as they can – but not everyone’s a vanilla transaction,” said Jackson. Connie Wang from Prosperity Finance remembers when banks offered a better level of service. “I didn’t really use non-banks much [when I started 10 years ago] … the main bank lenders at the time, they were more skilful – you probably only needed to deal with one assistant, and they could help you from the beginning to the end. Now, banks have more departments, and they work just like boxes. You can talk to many people, and they don’t know each other or what they’re doing. They follow a textbook, so if a scenario doesn’t fit the box, then it’s a no.” The siloed thinking at banks can result in frustration for advisers.

Non-banks offer certain advantages in a high interest rate environment in which deals can be more challenging for certain borrowers, and cookie-cutter solutions don’t work. Advisers need someone who understands lending markets well and has a range of arrows in the quiver. “We’ve got advisers, and we’ve got customers who are wanting to talk to people who’ve done deals over a long period of time, who understand different markets and understand different needs,” said Jackson. Key advantages include the flexibility of non-banks and the fact that, for clients with limited borrowing capacity, they allow buffers at a lower rate than what’s required by many mainstream lenders.

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Most Kiwi mortgage holders have now transitioned to higher interest rates, with many benefiting from increased nominal incomes, which has helped them ease into higher borrowing costs. “Nonetheless, some households are struggling and in response have been cutting back on expenses or prolonging their loan repayments to stay afloat,” said Campbell. “Persistent inflationary pressure may result in interest rates remaining at elevated levels for some time to come, which in turn imposes continued strain on households, businesses and the broader financial system.” In some ways, tougher economic conditions act as a tailwind for lenders that have more flexible options. “[Our business] has a countercyclical nature – usually in the harder times it gets busier,” said Jackson. “We’re in an unusual situation at the moment because of inflation, and we’re in a recession with high interest rates – it’s kind of like a double whammy.” Indeed, the pain is being felt across the mortgage industry, with banks increasingly competing for business handled by non-banks.

“The biggest competitor is a customer not finding the solution or going through an adviser and not being presented the solution,” he said.

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, buy 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.

Find out more

Having entered the New Zealand market in 2019, Pepper Money has quickly established itself as a lender that truly embodies the spirit of the non-bank sector. Pepper Money provides a variety of flexible home loan solutions designed to meet customer needs, including some the banks won’t. Pepper Money proudly offers hard-working Kiwis a real-life and flexible approach to lending. It looks at each Kiwi family’s or individual’s situation. Helping people succeed is at the heart of what Pepper Money does, and that means whether someone is just getting started, recovering, or looking to improve their situation. Now and in the future, Pepper Money is here to help people achieve that goal.

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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. The company is committed to being a responsible lender directly to customers and recognises the importance of conducting its business in an ethical and responsible manner. Offering competitive interest rates and flexible home loan options with great features, Resimac provides solutions to a wide range of customers through its network of broker and adviser partners.

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In Partnership with

Leveraging the non-bank edge

Read on

Campbell Smith

Pepper Money

Satyan Mehra

iConsult

Luke Jackson

Resimac

Ian Boyce

Avanti Finance

Industry experts

Avanti Finance

Ian Boyce

Resimac

Luke Jackson

iConsult

Satyan Mehra

Pepper Money

Campbell Smith

In Partnership with

Leveraging the non-bank edge

Read on

Campbell Smith

Papper Money

Satyan Mehra

iConsult

Luke Jackson

Resimac

Ian Boyce

Avanti Finance

Industry experts

Pepper Money

Campbell Smith

iConsult

Satyan Mehra

Resimac

Luke Jackson

Avanti Finanve

Ian Boyce

The trouble with mainstream banks

Published 04 Jun 2024

Connie Wang

Prosperity Finance

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Connie Wang

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Advisers are increasingly seeking out non-banks, and clients are more aware of the options out there. “The number of lenders that are available, the number of options that are available, is growing, which is good in many ways … the non-bank market seems to be growing,” said Mehra. Part of the reason is that non-banks such as Pepper Money, Resimac and Avanti are taking a more active approach in the market, particularly to the challenging cases. “[It’s] just a more hands-on approach … I find it easier to deal with non-bank lenders and use that solution to help more clients to solve their problems or achieve their goals,” said Wang.

Growing demand for non-bank products and services

Campbell also sees non-banks as taking the reins in areas now often overlooked by traditional banks. “Traditional banks have become less receptive to customers that fall outside of their targeted criteria, and this is where we have identified a significant and often underserved market,” he said. “We serve as a vital provider for customers who may have been served by banks in the past but are now seeking more flexible and tailored financial solutions that better suit their circumstances.” Banks will often use algorithms to assess a loan application in a mechanical way. The limits of this approach have been highlighted over the last few years in particular.

“Higher interest rates, volatile house prices and the various changes to the CCCFA [Credit Contracts and Consumer Finance Act] have seen the major banks in New Zealand taking a more restrictive approach to lending, requiring many borrowers to seek out alternatives,” said Campbell. “We don’t operate with the hard criteria that the banks often apply via credit scorecard algorithms. Instead, we endeavour to find a way to say yes.”

A tough economy as a tailwind for non-banks

“Growth in the non-bank area has been a challenge over recent times, with the banks being more active in this space,” said Boyce. Non-banks have had to up their game accordingly. “[It’s about] being flexible and being agile; it’s also looking at how we fund the business.” Non-banks have less scale and higher operating costs than their mainstream rivals. Even so, they appear to be weathering the storm, with indicators such as the percentage of non-performing loans at non-bank finance companies well below where they were four or five years ago. “It’s about being as flexible as you can during more challenging times and making sure you’re not taking a short-term view in decisions to ensure you can support customers and the business over the long term,” said Boyce. But it’s also non-banks’ role to be there for customers in any type of economy because there will always be those who don’t fit the mould. “Our role is to continue serving underserved markets and emphasising the importance of providing customers with a consistent and predictable experience, regardless of economic conditions,” said Campbell.

In New Zealand, some advisers remain unaware of the markets that exist outside of simple vanilla borrowers. But as the prospects for that type of lending are likely to remain thin for longer than many had hoped, it’s inevitable that more advisers will start to explore other options to grow their businesses. “When the market turns and what used to be a production line of consistent deals dries up, how do advisers change [their thinking]? Frustration gets directed onto the bank, instead of [thinking about] how can we help this customer with a solution?” said Jackson. “That’s where non-banks come in. We live and breathe through all [types of] markets, and we can assist [advisers] and help them out.” Tough conditions brought about by COVID and its aftermath, combined with banks’ reluctance to stray from their risk parameters, have worked to the advantage of non-banks – and their clients. Wang cites a business owner client whose sales suffered during the lockdowns and the weak economy that immediately followed.

Changing the adviser mindset around non-banks

“When they went to the main banks … they couldn’t get enough lending from the bank to buy the property. But the non-bank lender will take a pragmatic approach and see how many years they’ve been trading, and consider the latest year, which is much better,” she said. A regular bank would have needed a longer period of strong business performance to commit. “So sometimes we can find a solution from non-bank lenders and help [clients] buy the property earlier.” This kind of attention to servicing brokers is crucial for non-banks. “A key component of our offering is how we support our advisers by having lending scenarios put to us for review, after which we provide clear and swift guidance,” said Campbell. “We operate under a continuous improvement framework and mindset, and our ability to swiftly adapt to regulations, update our policies and push out the changes to our business development managers and underwriters is unparalleled. This agility serves as the cornerstone of our proposition, and our non-bank edge.”

With the non-bank market in New Zealand a relative minnow compared to that of traditional banks, educating advisers is a key priority. “There’s still a huge opportunity in the non-bank space, and that’s exciting for all of us,” said Boyce. Campbell sees it as part of non-banks’ duty to educate advisers, who can then provide assurance to all of their borrowers that there are a variety of suitable loan options available to them. “We see it as our responsibility to lead the way in supporting advisers through ongoing education, particularly via advisor events, engagements and webinars,” he said. Advisers who are already familiar with the advantages non-banks offer are also a source of information for those still on the learning curve. Mehra is regularly asked by adviser peers how he convinces customers to take on the higher interest rates that non-banks offer. “There’s always challenges – it’s how you overcome them,” he said. “I’m a huge advocate of non-bank lenders; they’re a big part of our business. The value proposition [of taking out a non-bank loan] is the cost of doing business, that’s all it is. I am putting in front of clients a value: this is the cost, but this is going to help you do this. Banks are certainly cheaper, but they might not be able to assist in the way non-banks can.” Once the advantages are clear, non-banks can become a regular go-to tool for advisers in a variety of lending scenarios. “We use non-banks all the time, whether it’s construction funders or [for] the likes of property investors or first home buyers,” Mehra said. “[My explanation] is always: it’s the cost of doing business. I’ve helped heaps and heaps of first-time buyers with non-banks – perfectly fine deals, but they might not have enough deposit or there was something else the bank wasn’t happy with.”

Rectifying opportunities lost

Advisers like Mehra and Wang, who have cracked the non-bank market and understand its value, are looking for opportunities to help more clients. “We have regular contact with the non-bank BDMs, and every time they visit us, we always get some value out of that,” said Wang. Advisers are given the chance to be reminded of the work non-banks do and the unique products they offer. “[During a visit] we suddenly remember a couple of clients that had a similar scenario that we could have offered a non-bank solution. We want more connection and deeper collaboration so that we can help the client even better,” she said. The opportunity for non-banks to grow in New Zealand is massive, and the time is ripe to learn about how they can help.

The future is onwards and upwards for non-banks

“[Non-banks take] a more hands-on approach … I find it easier to deal with non-bank lenders and use that solution to help more clients to solve their problems or achieve their goals”

Connie Wang, Prosperity Finance

The growing role of advisers will also boost non-bank business because the adviser channel drives the lion’s share of non-bank lending. The consensus at the table was that the proportion of mortgage deals brokered by advisers in New Zealand is now well over 50%, with potential for the market here to trace a similar arc to that of Australia where the third party channel dominates. The advisers agree the upside prospects are considerable. “It’s still a small percentage of what we do, ” said Wang. “So it’s just a matter of getting into that mindset where you’re constantly thinking about the non-bank solution. To be honest, for the amount of work they do, they only charge a very small fee.”

Staying agile and well-informed is key to serving customers effectively, even when lending markets may seem to be stuck in a circling pattern. “Consistently understanding what non-banks are doing, how the non-banks are changing their policies, how you adopt them and how you can help your clients [is important] … the industry is always changing,” said Mehra. “The [customers that] you help to get out of a situation or find an out-of-the-box solution for are the ones who will become your biggest advocates.” While one effect will be to grow non-banks’ share of the lending market, the beneficiaries will also be those who would otherwise miss out on achieving their property or business goals – and the brokers who step up for them. “What we want to do is grow the pie bigger,” said Jackson. “We know there’s a lot of clients out there, customers out there who could have been helped, who could have achieved their goals, who could have got to where they wanted to go but who have been declined by main banks dealing in vanilla, or by an adviser who never thought to take it to a specialist lender.”

Non-bank housing lending ($m)

Non-bank business lending ($m)

Proportion of overall lending in housing sector

Month

YoY change

Source: Reserve Bank of New Zealand sector lending (C5) data, Apr 2024

YoY change

Proportion of overall lending in business sector

Mar 2020

3,298

20.5%

1.2%

5,078

6.2%

4.1%

SEP 2020

3,390

15.5%

1.2%

6,827

40.1%

5.8%

MAR 2021

3,815

15.7%

1.2%

6,751

32.9%

5.8%

SEP 2021

4,579

35.1%

1.4%

7,284

6.7%

6.1%

Mar 2022

5,586

46.4%

1.7%

7,748

14.8%

6.2%

Sep 2022

6,079

32.8%

1.8%

8,360

14.8%

6.4%

Mar 2023

5,831

4.4%

1.7%

8,795

13.5%

6.7%

Sep 2023

5,221

-14.1%

1.5%

9,036

8.1%

6.8%

mar 2024

6,005*

3.0%

6.9%

1.7%

7.0%

9,402

Six-monthly snapshot of non-bank lending to housing and business sectors

Source: Centrix Credit Indicator and Economic Forecast Reports

Note: No data available for Nov 2023

Aug 2023

Sep 2023

0.4%

Oct 2023

Unchanged

Dec 2023

-8%

Jan 2023

Feb 2024

Year-on-year change in total new residential mortgage lending

month

YoY change

From left: Ian Boyce, Avanti FInance; Satyan Mehra, iConsult; Campbell Smith, Pepper Money; Connie Wang, Prosperity Finance; Luke Jackson, Resimac

From left: Ian Boyce, Avanti Finance; Satyan Mehra, iConsult; Campbell Smith, Pepper Money; Connie Wang, Prosperity Finance; Luke Jackson, Resimac

From left: Ian Boyce, Avanti FInance; Satyan Mehra, iConsult; Campbell Smith, Pepper Money; Connie Wang, Prosperity Finance; Luke Jackson, Resimac

*figure reflects acquisition by Pepper Money of $1.4bn residential mortgage portfolio from HSBC in December 2023