When it comes to home loans in New Zealand, banks dominate the market—but they're not your only option. Non-bank lenders offer alternative pathways to homeownership, often with different deposit requirements and lending criteria. Understanding the differences helps you choose the right lender for your circumstances.
What Are Non-Bank Lenders?
Definition: Non-bank lenders are financial institutions that provide mortgages but don't hold banking licenses. They include finance companies, building societies, and specialist mortgage providers.
Key Non-Bank Lenders in NZ:
- Liberty Financial
- Resimac
- Pepper Money
- Southern Cross Partners
- Avanti Finance
- Nelson Building Society
- Wairarapa Building Society
Deposit Requirements: Banks vs Non-Bank Lenders
Traditional Banks:
- First-home buyers: 10-20% deposit
- Existing homeowners: 20% deposit
- Investors: 30-40% deposit
- Bound by Reserve Bank LVR restrictions
- Standard creditworthiness requirements
Non-Bank Lenders:
- Often accept 10-20% deposits (sometimes lower)
- Not bound by Reserve Bank LVR restrictions
- More flexible with non-standard income
- May accept lower credit scores
- Property condition requirements vary
Bank vs Non-Bank Lender Comparison
Understanding the key differences helps you identify which lender type suits your situation.
| Criteria | Traditional Banks | Non-Bank Lenders |
|---|---|---|
| Deposit Requirements | 10-40% (LVR restricted) | 10-20% (lender discretion) |
| Interest Rates | 6.0-7.5% | 7.5-10.5% |
| Income Types Accepted | PAYE preferred, strict self-employed criteria | Flexible: self-employed, contractors, multiple sources |
| Credit History | Strict, defaults problematic | More lenient, considers resolved issues |
| Property Types | Standard residential only | Unusual properties, cross-lease, properties needing work |
| Approval Speed | 2-4 weeks | 1-3 weeks (sometimes faster) |
| Establishment Fees | $500-$1,000 | $1,500-$3,000 |
| LVR Restrictions | Yes (RBNZ rules) | No |
Key Differences in Lending Criteria
Income Assessment:
- Banks: Prefer PAYE income, strict employment history requirements, cautious with self-employed
- Non-Banks: More flexible with self-employed, contractors, commission-based income, multiple income sources
Credit History:
- Banks: Strict credit score requirements, defaults can be deal-breakers
- Non-Banks: Consider applications with past credit issues, defaults, bankruptcy (usually need to be discharged)
Property Type:
- Banks: Prefer standard residential properties in good condition
- Non-Banks: More flexible with unusual properties, properties needing work, cross-lease, leasehold
Servicing:
- Banks: Conservative assessment, stress test at higher rates
- Non-Banks: May be slightly more generous with servicing calculations
When to Consider Non-Bank Lenders
Ideal Scenarios:
- Self-employed or non-standard income: Your income is solid but doesn't fit bank criteria
- Credit history issues: Past defaults or bankruptcy (now resolved)
- Unusual property: Property type banks won't touch
- Time-sensitive: Need faster approval or settlement
- Complex circumstances: Multiple income sources, recent immigration, contract work
Example Case Studies:
Case 1: Self-Employed Contractor
- Income: $95,000 (varies monthly)
- Deposit: $120,000 (20%)
- Bank response: Declined due to income variability
- Non-bank response: Approved based on 2-year average income
Case 2: Previous Default
- Income: $75,000 (PAYE)
- Deposit: $80,000 (15%)
- Credit history: Paid default from 2 years ago
- Bank response: Declined
- Non-bank response: Approved with higher interest rate
The Trade-Offs
Non-Bank Lender Advantages:
- More flexible lending criteria
- Faster approval processes (sometimes)
- Consider unique circumstances
- Not bound by LVR restrictions
- May lend on unusual security
Non-Bank Lender Disadvantages:
- Higher interest rates (typically 0.5-3% higher than banks)
- Higher fees (establishment, ongoing, early repayment)
- Fewer product options (limited offset, redraw features)
- Less competitive rates
- May require exit strategy or plan to refinance to bank
Cost Comparison Example
Bank Loan:
- Loan amount: $500,000
- Interest rate: 6.5%
- Monthly payment: $3,160
- Establishment fee: $500
Non-Bank Loan:
- Loan amount: $500,000
- Interest rate: 8.5%
- Monthly payment: $3,845
- Establishment fee: $1,500-$3,000
Difference: $685/month = $8,220/year = $164,400 over 20 years
How to Use Non-Bank Lenders as a Bridge to Homeownership
Many borrowers strategically use non-bank lenders as a temporary solution to enter the property market.
Step 1: Assess Your Situation and Timeline Determine why banks declined your application. Identify what needs to improve (credit score, employment stability, property equity). Set a realistic timeframe for improvement (typically 2-3 years).
Step 2: Secure Non-Bank Financing Work with a mortgage broker who specializes in non-bank lenders. Present your application with clear documentation of income and deposit. Understand the total cost including higher interest rates and fees. Ensure the loan terms allow refinancing without excessive penalties.
Step 3: Enter the Property Market Purchase your home using non-bank financing. Start building equity as property appreciates. Begin paying down the mortgage to improve your loan-to-value ratio. This gets you into the market immediately rather than waiting years while prices potentially rise.
Step 4: Improve Your Financial Position Build a stronger credit history with consistent mortgage payments. Stabilize employment or income patterns. Allow time for past credit issues to age. Document income more comprehensively if self-employed. These improvements make you more attractive to traditional banks.
Step 5: Monitor Bank Lending Criteria Keep track of changes in bank lending policies. Stay informed about LVR restriction adjustments. Understand when you're likely to meet bank criteria. Start researching bank products 6-12 months before planned refinancing.
Step 6: Refinance to a Traditional Bank Apply for refinancing once your situation improves. Use property appreciation and equity buildup to strengthen your position. Compare multiple bank offers to get the best rate. Complete the refinance within your planned timeframe (typically 2-3 years).
Requirements for Bridge Strategy Success:
- Understand total cost over strategy period
- Budget for higher payments initially
- Monitor bank lending criteria changes
- Start refinance process 6-12 months before exit
- Ensure no excessive early repayment penalties
Making the Choice
Choose Banks If:
- You meet standard lending criteria
- You have standard PAYE employment
- Property is conventional residential
- Good credit history
- Want lowest interest rates and fees
Consider Non-Banks If:
- Banks have declined your application
- Self-employed or non-standard income
- Past credit issues (now resolved)
- Unusual property type
- Need faster approval
- Willing to pay premium for flexibility
Application Process Differences
Banks:
- Detailed documentation requirements
- Multiple rounds of verification
- 2-4 weeks typical processing
- Stricter compliance processes
Non-Banks:
- Streamlined applications
- Focus on ability to repay
- Sometimes faster approvals
- More relationship-based assessment
Regulations and Protections
Important Note: Non-bank lenders must still comply with:
- Responsible lending requirements (CCCFA)
- Financial Markets Conduct Act
- Privacy Act
- Fair Trading Act
You have the same consumer protections regardless of lender type.
Frequently Asked Questions
Q: Are non-bank lenders safe? A: Yes, reputable non-bank lenders are regulated under NZ financial law and must meet responsible lending requirements. Check they're registered on the Financial Service Providers Register.
Q: Can I get a lower deposit with a non-bank lender? A: Sometimes, but not always. Non-bank lenders aren't bound by LVR restrictions but have their own risk policies. Expect similar deposit requirements to banks in most cases.
Q: How much more expensive are non-bank lenders? A: Interest rates typically range from 0.5-3% higher than banks, and fees are often higher. Total cost difference can be significant over a full loan term.
Q: Should I use a mortgage broker to access non-bank lenders? A: Yes, brokers often have better relationships with non-bank lenders and can present your application most favorably. They can also access lenders you might not find independently.
Q: Can I refinance from a non-bank to a bank later? A: Yes, this is a common strategy. Once you've built equity and strengthened your position, refinancing to a bank can save significant money.
Q: What documentation do non-bank lenders require? A: Similar to banks but with more flexibility in what they'll accept. Expect to provide proof of income (tax returns for self-employed), bank statements, identification, and property details.
Q: Do non-bank lenders require mortgage insurance? A: Some do, some don't. It depends on the lender and your deposit size. This is an additional cost to factor into your comparison.
Q: How long should I plan to stay with a non-bank lender? A: Most borrowers use non-bank lenders for 2-3 years before refinancing to a traditional bank once their circumstances improve. This balances access to property with long-term cost efficiency.
