What if banks still decline me after two years with non-bank lending?

If bank refinancing remains unavailable after the planned period, options include extending with the non-bank lender (often at improved rates given payment history), trying additional banks with different policy approaches, adjusting financial structure to meet criteria, or reassessing whether continued property ownership makes financial sense given higher ongoing costs. Work with broker to understand specific remaining barriers.

Can I refinance to a bank earlier than planned if my situation improves faster?

Yes, most non-bank facilities allow early refinancing without penalty, though confirm specific terms in your loan agreement. Some lenders charge break fees for very early exit (within 6-12 months), but most encourage bank refinancing once borrowers qualify. Early refinancing captures bank rates sooner and reduces total interest costs, so pursue it as soon as you meet bank criteria.

Will using non-bank finance hurt my ability to get a bank mortgage later?

No—successfully maintaining a non-bank facility demonstrates creditworthiness and payment reliability. Banks assess refinance applications based on whether you meet their current criteria, not which lender you've been using. A perfect payment history with a non-bank lender strengthens your application by proving responsible debt management. Successful non-bank to bank transitions happen daily.

How much should I budget for the rate premium during the stepping stone period?

Non-bank rates typically run 2-4% higher than bank rates. On a $500,000 loan, expect approximately $10,000-$15,000 additional annual interest cost compared to bank rates. Factor this premium plus setup fees ($3,000-$5,000) into your decision, balancing short-term costs against benefits of earlier market entry, property appreciation, and avoiding continued rent payments. Calculate total stepping stone cost versus waiting to meet bank criteria.

What's the most common mistake borrowers make with stepping stone strategies?

The most common mistake is not having a clear refinance plan from the outset. Borrowers who enter non-bank lending without understanding exactly what must change for bank approval often remain in higher-cost financing longer than necessary. Before securing non-bank finance, identify specific criteria to meet (2 years trading, credit score threshold, income verification method) and create timeline for achieving each milestone.

How Non-Bank Lending Can Be a Stepping Stone to a Bank Mortgage

3:29

November 21, 2025

How Non-Bank Lending Can Be a Stepping Stone to a Bank Mortgage

By Trent Bradley · 4 minute read

how-non-bank-lending-can-be-a-stepping-stone-to-a-bank-mortgage

For many New Zealanders, getting onto the property ladder or refinancing a home loan can feel out of reach when banks say no. But being declined today doesn’t mean being locked out forever. Increasingly, borrowers are using non-bank lending as a stepping stone: securing the property now and then refinancing to a bank mortgage once circumstances align.

The Problem: A Bank Decline Isn’t Always About Affordability
The Non-Bank Solution: A Bridge, Not a Dead End
How the Stepping Stone Works
Who This Approach Suits
Case Example
Frequently Asked Questions

Key Takeaways

Non-bank lending can act as a practical stepping stone, not a last resort.
The strategy works best with a clear refinance plan — know what criteria you need to meet to qualify with a bank later.
Borrowers should budget for slightly higher costs in the short term, balanced against the benefit of entering the market sooner.
Professional advice is critical: a broker or adviser can map the pathway from non-bank entry to bank refinance.

The Problem: A Bank Decline Isn’t Always About Affordability

Banks operate under strict rules and risk settings shaped by Reserve Bank capital requirements and CCCFA regulations. That means strong would-be borrowers can still get caught out by:

Short work history: starting a new job or business with limited proof of income.
Non-standard income: self-employed, contract, commission, or overseas earnings.
Credit blemishes: a missed bill or short-term issue pulling down the credit score.
Tight timelines: auction purchases or conditional deadlines banks can’t meet in time.

None of these necessarily mean a borrower can’t repay a loan — they simply don’t fit the bank’s boxes right now.

The Non-Bank Solution: A Bridge, Not a Dead End

Non-bank lenders provide flexibility by assessing borrowers on a case-by-case basis. They may use alternative documentation, accept different income sources, or provide short-term facilities that get the deal across the line.

Importantly, non-bank finance doesn’t have to be permanent. Many borrowers enter with the intention of refinancing to a bank product once they’ve built up the history, credit score, or equity position the banks require.

How the Stepping Stone Works

Secure the property now: use a non-bank loan to buy the home or refinance under pressing circumstances.
Stabilize your profile: build consistent income history, repair credit, or meet bank serviceability requirements.
Refinance to a bank: once you meet mainstream lending criteria, switch to a bank mortgage with sharper long-term rates.

Who This Approach Suits

First-home buyers: who don’t want to miss a buying window while they’re still piecing together documentation or savings history.
Refinancers: with recent credit issues who want to restructure debt now and move to a bank once their score improves.
Self-employed borrowers: who need one or two more financial years to demonstrate stable trading income.
Investors: who need bridging or short-term facilities banks can’t deliver on the timeline required.

Case Example

A Wellington couple bought their first home using a non-bank loan after being turned away by their bank due to one partner being newly self-employed. After two years of consistent income and on-time repayments, they refinanced to a major bank at a lower rate — saving thousands in interest while keeping their home ownership dream alive.

Frequently Asked Questions

How long should I plan to stay with a non-bank lender before refinancing to a bank?

Most borrowers successfully refinance to a traditional bank within 18-24 months. This timeframe allows you to demonstrate consistent repayment history, build equity through property appreciation and principal payments, and address whatever initially prevented bank approval—whether that's establishing longer employment history, improving credit scores, or generating additional tax returns if self-employed. Some borrowers refinance sooner (12 months) if circumstances improve quickly, while others may need 2-3 years if rebuilding from significant credit issues. Work with a mortgage broker to create a specific timeline based on your situation.

What do I need to do during the non-bank loan period to qualify for bank refinancing?

Focus on three key areas: maintain perfect repayment history with zero missed or late payments, actively improve your credit score by paying all bills on time and reducing other debts, and build the documentation banks require—such as additional tax returns for self-employed borrowers, longer employment tenure for job changers, or resolving any credit defaults. Additionally, pay down your loan-to-value ratio through regular payments and property appreciation, as banks require lower LVRs than non-bank lenders. Keep detailed financial records and monitor your progress quarterly so you know exactly when you'll meet bank criteria.

Will I face penalties when refinancing from a non-bank lender to a bank?

This depends entirely on your loan structure, so check carefully before signing with a non-bank lender. Some non-bank loans include early repayment penalties or break fees, particularly if you're on a fixed rate term. However, many non-bank lenders structure loans specifically as "bridge" products with minimal exit costs, understanding borrowers intend to refinance. Ask explicitly about early repayment terms during your initial application, and work with a broker who can negotiate loan structures that facilitate future refinancing without excessive penalties. Factor any potential exit costs into your overall strategy budget.

What if my circumstances don't improve enough to qualify for bank refinancing?

You have several options if bank refinancing proves difficult. First, you can extend your non-bank loan term while continuing to build equity and improve your profile—many borrowers simply need more time. Second, you might refinance to a different non-bank lender offering better rates once you've demonstrated repayment capacity. Third, consider whether partial improvements qualify you for "near-prime" lenders who sit between traditional non-banks and major banks in both criteria and pricing. Finally, if your income or credit fundamentally won't meet bank standards, accepting long-term non-bank lending may be necessary—focus on minimizing costs through portfolio reviews and rate negotiations.

How much will the stepping stone strategy cost me compared to getting bank finance initially?

On a $500,000 loan, expect to pay roughly $8,000-$10,000 extra annually in interest due to higher non-bank rates (typically 1.5-3% above bank rates), plus higher establishment fees of $1,500-$3,000 versus banks' $500-$1,000. Over a two-year stepping stone period, total extra costs might run $16,000-$22,000. However, compare this against alternatives: if waiting 2 years to meet bank criteria means missing property appreciation of 5-10% annually, you'd miss $50,000-$100,000 in equity gains on a $500,000 property. The stepping stone strategy makes financial sense when property appreciation and immediate market entry outweigh the premium borrowing costs

Can investors use the stepping stone strategy, or is it only for first-home buyers?

Investors frequently use this strategy, often more effectively than first-home buyers. Property investors benefit from non-bank lending when they've hit bank portfolio limits, need bridging finance to purchase before selling, or require flexible treatment of rental income that banks restrict. The stepping stone works particularly well because investors can refinance to banks once they've demonstrated rental income history, built equity through appreciation, or restructured their portfolio to meet bank serviceability tests. Many experienced investors strategically use non-bank loans for specific purchases, then refinance the entire portfolio once the new property's value and income are established.

Disclaimer: This article provides general commentary only and is not financial advice. Always consider your personal circumstances and seek qualified guidance before entering into lending agreements.

Trent Bradley

Trent Bradley is a New Zealand financial advisor specializing in property-backed finance and investment consulting. With over 26 years of experience running his mortgage broking business, he has helped wholesale investors access high-yield property-backed loan opportunities. For the past 12 years, Trent has led Luminate Finance, a New Zealand finance company dedicated to connecting investors with secure property investment solutions.

Website LinkedIn