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.
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:
Traditional Banks:
Non-Bank Lenders:
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 |
Income Assessment:
Credit History:
Property Type:
Servicing:
Ideal Scenarios:
Case 1: Self-Employed Contractor
Case 2: Previous Default
Non-Bank Lender Advantages:
Non-Bank Lender Disadvantages:
Bank Loan:
Non-Bank Loan:
Difference: $685/month = $8,220/year = $164,400 over 20 years
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).
Choose Banks If:
Consider Non-Banks If:
Banks:
Non-Banks:
Important Note: Non-bank lenders must still comply with:
You have the same consumer protections regardless of lender type.
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.