mortgage the new zealand
Volume 11, Issue 3, April 2011 DIGITAL EDITION Volume 10, Issue 4, June 2011
mag
advice for lenders and advisers
Where to go when the bank says...NO !
T I G
I D
L A
L A I
P S
C E
Meet some of the
non-bank lenders
June 2011 - Digital Special
the nz mortgage mag
1
2
the nz mortgage mag
Digital Special - June 2011
Editorial Welcome to our digital world We are always looking at and new ideas and ways of delivering information to readers. We strive to produce top quality publications full
The non-bank lenders
of useful information for you. Currently we are trialling putting selected magazine copy into a digital format for readers. This is a digital version of the lead article from the June issue. For this issue of the magazine we decided to have a look around and see what non-bank options are out there. Part of the idea came from snippets of information we heard about private funders being in the market. One of those I found out about at the beach over summer when I met a mate from primary school, Bruce Darwin. We have discovered that there are plenty of non-bank lending options available to brokers, particularly for those difficult loans banks won’t do or for bridging finance. No doubt there are some others out there as well. This version of the original article is slightly different from the print version and includes more lenders than before. Also since we wrote the piece there is noise that a number of non-bank lenders will cross the Tasman and set up operations in New Zealand. Have a read of the article and let us know what you thin k of the digital format. Email your thoughts to editor@mortgagerates.co.nz
June 2011 - Digital Special
For many investors “finance company” is a dirty two words, others - particularly borrowers, appreciate the contribution they have made to growth in this country. Jenny Ruth reviews the state of the nonbank sector and finds there are more than you might expect out there still providing a vital service. The non-bank residential mortgage lending sector has shrunk to a mere shadow of what it was before the melt-down of so many finance companies and the global financial crisis (GFC) and is likely to shrink even further. Reserve Bank figures show non-bank lenders accounted for just 2.3% of total housing loans in April this year. Back in April 2007, just before the GFC began to bite, they accounted for 5.3% of housing loans and had been growing in importance for several years. The Reserve Bank figures will shrink even further because they include only
companies with total assets of more than $100 million. A number of mortgage books currently included are being run down and will soon fall below the central bank’s radar. But beneath that radar, a surprising number of companies have continued to operate throughout the GFC, mostly offering short-term bridging finance to those who don’t or won’t meet the mainstream lenders’ criteria. Typically, these organisations are financed by private investors and bank facilities with mortgage books ranging from less than $10 million up to about $80 million. They lend at relatively high interest rates - starting at 9.95% - and,
the nz mortgage mag
3
reflecting relative risk, these days they generally won’t lend more than 70% of a property’s valuation. Currently included in the Reserve Bank figures are finance companies in receivership, such as Equitable Mortgages, as well as offshore lenders which used to be active in the housing loan sector such as GE, Bluestone and Liberty. The figures also include mainstream lenders which remain active lenders such as the Public Trust, which had a loan book of $215.7 million at December 31, 2010, and PSIS, which had $976.2 million at March 31 last year, mainly of mortgages, and a number of building societies such as the Wairarapa and Nelson ones. But of the debenture-funded companies large enough to be included, the NZXlisted NZF Group, whose total assets at March 31 were $248.7 million, seems to be the sole survivor.
NZF NZF has just resumed lending again after a few months suspension, having Mark Thornton become confident of securing fresh equity and the new business partner it has been seeking since early last year. Managing director Mark Thornton says his company remains dependent on mortgage brokers - and is one of the few lenders still paying both upfront and trail commissions - to bring in business and it targets “non-bank prime clients who have wider horizons and who are open to a lesser-known financial services brand.” Unlike those operating in the bridging finance space, NZF clients have to have a clean credit history and proven debtservicing ability, although it does offer higher loan-to-valuation ratio (LVR) products than banks will often accept. Companies operating in the bridging finance space:
ADVANTAGE FINANCE Advantage Finance lending manager Leighton Christoffersen says his clients 4
the nz mortgage mag
don’t fit bank criteria but that doesn’t mean they don’t present good business. For example, he’s approved a loan to a builder who wanted to take a year off work to build a house on a section he owned. “The security’s fine and the plan is fine but for one reason or another it fails under the banks’ check list,” Christoffersen says. Advantage tends to be somewhat more conservative than other similar lenders, generally not wanting to lend more than 65% of a property’s value for a maximum 12 months. “We’re just really conscious of where the market’s at and where property values are heading.” He doesn’t trust valuations either. “Valuers are still valuing properties at what we think are around peak values. We take an extra margin off to give ourselves comfort.” That tends to pay off in keeping mortgagee sales low. “Usually, people are able to sort it out themselves. Because we operate at reasonably low LVRs, it usually means they have options to refinance or repay.” Advantage, whose mortgage book is about $10 million, has been operating since 1994 using shareholders’ equity and bank funding
ASAP FINANCE ASAP Finance director Adarsh Patel says less than 10% by value of his company’s $50 million to $80 million loan Adarsh Patel book is made up of residential loans and most of its borrowers are developers and investors, filling a small part of the gaping hole left by collapsed finance companies. “We love doing residential deals, don’t get me wrong, but the reality is there’s still very strong competition in the residential space,” Patel says. The key thing his company wants is for its borrowers to have a clear exit strategy. “It’s a temporary option. Brokers need to think that through,” he says. ASAP won’t lend less than $150,000 or for longer than 12 months, requires LVRs of no more than 75% and generally charges between 11%
Digital Special - June 2011
and 13% interest. ASAP, which has been operating about seven years, is funded by its shareholders.
company also has $30 million in capital and a $40 million bank facility.
AVANTI FINANCE
BASECORP FINANCE
Since Glenn Hawkins and partner Steve Eltringham founded Avanti in 1990, it has specialised in consumer type loans targeting much the same market as Geneva Finance, now GFNZ Group, which is operating under a moratorium. Hawkins says Avanti’s average loan size is just $8,000. Hawkins says his company wasn’t in the mortgage space at all until about four years ago when some of its existing customers started coming to it seeking help when they were facing mortgagee sales. Over the last couple of years, the company has started working with mortgage brokers, offering them the opportunity to broaden the services they can offer clients beyond mortgages into personal loans and debt consolidation schemes. Before the GFC, mortgage brokers weren’t interested in Avanti’s services but tougher times have made them see the possibilities. “We were previously seen as beneath them,” Hawkins says.
Basecorp Finance lending manager Craig Rolls says of his company’s residential mortgage book of about $70 million, about 90% of lending is on first mortgage security and the balance on second mortgages. “The type of bridging lending we do could be to an individual who’s Craig Rolls got themselves in a predicament with a bank and the bank’s putting pressure on them to go,” Rolls says. If the borrower has at least 30% equity in the property, Basecorp, which has been operating more than 10 years, is happy to give them six to 12 months to sort the situation out, he says.
“We provide them with an ability to talk to their clients and to keep close to them.” Avanti’s total $82 million loan book, including the now merged former sister company Galatos Finance, has continued to be part-financed through debenture funding even through the worst of the GFC. Hawkins says Avanti only has 51 debenture holders and its reinvestment rate is currently 100% - at its worst, it only sank to 80%, he says. The
June 2011 - Digital Special
Its typical interest rate is 11.99% plus fees although it has charged as low as 10.5% on some deals. The company is funded by a mix of owners’ equity and bank facilities. Rolls describes the company’s services as “the sticking plaster” to help clients out of a difficult situation. “We certainly can’t commit our funds long term and people can’t afford to pay rates of 11% or 12% for any great length of time.
CAPITAL SECURITIES Since 1996, Bruce Darwin has been matching each individual borrower to a specific investor whose name goes on the
the nz mortgage mag
5
LEAD
CROWN FINANCE
mortgage - sometimes Darwin himself - and Darwin manages all aspects of the loan through to repayment. Depending on the state of the market, he could be managing anything between $15 million and $25 million worth of mortgages at any one time, Darwin says. He will only arrange first mortgages, never lends more than two-thirds of a property’s value and only for a maximum 12 months, generally at 9.95% interest. “I’m a very hands-on lender,” Darwin says. “I go and look at every property and meet the vendor. I don’t trust valuations.” He’s only ever had one mortgagee sale, Darwin says. He describes his business as “messy loans. Banks don’t like messy loans.”
Crown Finance managing director Chris Arbuckle doesn’t want to say what size his company’s mortgage book is but says “we see ourselves more as a boutique financier.” Chris Arbuckle Exclusively funded in-house, it will fund residential construction and provides bridging finance up to 70% of a property’s value at interest rates between 10.5% and 14%, depending on the borrower’s risk profile. Crown, which was founded in 2005, generally won’t lend longer than 12 months.
CRESSIDA CAPITAL
DBR FINANCE
Cressida Capital general manager Nigel Staples says although his company has been operating since 2002 when finance companies were mushrooming, it made a conscious decision not to use debenture funding.
DBR Finance director Darryl Eastgate says his company’s residential mortgage book is about 80% of its business which is financed with $10 million of shareholders’ funds and a $25 million bank facility. It will generally lend up to 70% of a property’s value. A typical customer might be Darryl Eastgate somebody with little debt who buys another house with the intention of selling their existing home and then finds their bank won’t support them through the process. “That’s a nice easy transaction for us. It’s business that the banks should be doing,” Eastgate says. In other cases, clients might need rescuing from their banks and need time to sort out their difficulties but DBR wants to see clear exit strategies. “We never want to be on Close Up or something like that.”
Nigel Staples
Instead, its about $25 million mortgage book is privately funded and with bank loans. While it will lend up to three years on commercial loans, its residential loans tend to be six to 12 months and it will lend up to 75% of a property’s value at interest rates between about 9.5% and 10.95%. “Because of what’s happened in the last few years, it’s difficult to go beyond 75%. It’s like 70% is the new 80%,” Staples says. Pre-GFC, up to 80% LVRs were the norm, he says. As with the other companies, Cressida’s clients tend to be those who can’t satisfy bank criteria. “We often look at ourselves as a stepping stone.” Cressida has had only two mortgagee sales since inception, he says.
LEGEND INTERNATIONAL Carolyn Calder, who is also a mainstream mortgage broker dealing with the major banks, specialises in “rehabilitating”
mortgage the new zealand
mag
advice for lenders and advisers
20111 Mayil 201 3,3,Apr Issuee 11, 10,Issu Volume
ge ortga and
w zeal
the ne
No longer a member of the NZMBA? To keep getting the NZ Mortgage Mag and to keep up with all the best broking news subscribe today for only:
m e for
$66
advic
1210-H
elp your
protect
biggest
w zeal
e for
s
rs an
lende
Help your cl their bigges ients prot ect t asse t r
Buying a hous their lifetime. e is one of the mos So, it makes t expe Our new nsive sense purchase to prot provides TotalCareMa ect it. s a pers x Mor cover totally tgage on can disabled for mor tgag Insta make lmen e repa optio in t Insu nal ben . An adde yments rance d bonu efit. does s is that in the even just As Mor redundan t your clien that. It tgage Insta have t beco specifically cy cove lmen the mes r is avai lifestyle opportunity t Insuranc lable e is part to offer requirem as an of other ents. risk prod the TotalCar eMa x ucts To find to com port folio out mor plem Hom ent your , you e abou e Loan t clients’ Sovereign Developm our new ent Man TotalCareMa on 080 ager, 0 500 x Sover on 0274 Mor tgag eign 103. All applic Assur 757 225 e Instalmen ations ance Comp t Insu are subje any or ema ranc ct to Limite d. il nick indivi .russell@ e cover, spea dual consi derat k to Nick sovereign ion. Cond .co.n itions z or call Russell, apply .
client
the ne
advic
er d advis
t Whais you
10032
mort
mag
h?
Wort
phone: 0800 345675 or email subs@tarawera.co.nz 6
the nz mortgage mag
ers
gage
Volume 11, 10,Issu Issuee3, 4,Apri Junl e2011 2011
s
the
3:32
advis
Whe re t mag bank o go whe n says .. .N O t h e ! Me
dd 1
8/12/10
rs and
non- et some of th bank e lender
asset.in
April
and
lende
Revisit ing yo Good ur Fa cebo Br ok st Pickin oker Bad rategy Brok g futu er re ra 1 te ris mag es rtgage nz mo
PM
2011
Digital Special - June 2011
borrowers with bad credit records. She finances that part of her business by matching borrowers with private investors whose names go on the resulting mortgages. Calder says she provides her investors with all the details of would-be borrowers and they choose which ones they will finance while Calder looks after all the administration. Pre-GFC, Calder says she had more investors than available loans. “It’s harder work now - everyone’s much more cautious.”
SOUTHERN CROSS Southern Cross sales director Grant Clifton says bridging finance with first mortgage security accounts for about 90% of its $60 million mortgage book, although it will Grant Clifton provide small second mortgages for up to five years. People can borrow for all sorts of reasons, including for boats or caravans, but all loans must be property secured, Clifton says. The company charges between 9.9% and 13.95% for loans with first mortgage security and between 14% and 18% for second mortgages. Southern Cross, which was founded in 1997, is financed with shareholder funds and a banking facility and it also arranges contributory mortgages where investors get their names directly on the title of the property on which they lend. For example, Southern Cross may approve a $200,000 loan at 11% and offer its investors 8% or 9% to finance two-thirds of it. Like most, the company generally doesn’t lend more than 70%
of a property’s value. While Southern Cross continued lending through the GFC, its book shrank from about S$80 million a couple of years ago. “The reason why we’re still in business is we pulled back. We didn’t want to have large exposures to single clients,” Clifton says. While the company will still consider loans larger than $500,000, it will usually do them in joint-venture arrangements. Clifton says mortgagee sales are a fact of life in his company’s niche in the market but they have slowed since peaking in 2008 and arrears are currently at historical lows below 4%. to lend more than 65% of a property’s value for a maximum 12 months. “We’re just really conscious of where the market’s at and where property values are heading.” He doesn’t trust valuations either. “Valuers are still valuing properties at what we think are around peak values. We take an extra margin off to give ourselves comfort.” That tends to pay off in keeping mortgagee sales low. “Usually, people are able to sort it out themselves. Because we operate at reasonably low LVRs, it usually means they have options to refinance or repay.”
Jenny Ruth is a senior writer with the NZ Mortgage Magazine and goodreturns.co.nz
We work outside the box... At Avanti Finance we realise each person is unique, so unlike a bank, we base each finance application on the client’s individual profile...
Freephone 0800 33 33 20 or visit www.avantifinance.co.nz
tick box ✗ No credit scoring unrealistic ✗ No UMI formulas quick, easy ✓Just financial solutions!
For further information Call Suzie on 021 706 213 or Julia on 021 706 236
June 2011 - Digital Special
the nz mortgage mag
7
Your 1st Choice for non-Bank low doc loans Southern Cross Finance has operated in the 2nd tier property finance market since its inception in 1997. The global financial crisis and subsequent cooling of the property market prompted the directors to refocus Southern Cross Finance back to its core business which has always been short term residential bridging finance. It’s what we know and what we are good at, says Grant Clifton, sales manager. Southern Cross has always had a core Value of helping and lending to those people who fall outside of traditional banking guidelines. We take a very humanistic approach to helping those with various financial issues and guiding them back onto the right track. Once we have written a deal we don’t just forget about the client, but encourage them to keep in contact with us and their broker to ensure their stay with us is smooth. If they think they are going to miss a loan payment we encourage clients to keep in touch and advise of progress they are making to rectify the situation. Unlike other lenders in our market we prefer to work with clients to rectify the problem, rather than taking immediate recovery action and selling them up. The second tier market is a fantastic market for brokers to become involved in as it offers the chance to work more closely with your client to provide a solution over a period of time and the chance to re-finance them once they are ready to go back to a bank. Brokers get the chance in many cases to turn a very stressful time for their clients into a win/win situation. Grant likes to operate a fast no-nonsense approval process, with minimal loans conditions. Having being a broker previously he understands the importance to brokers of getting a yes or no quickly so they can remove
8
the nz mortgage mag
the client from the market. Southern Cross lends to a very wide range of clients from people who can’t meet bank servicing criteria, self-employed with no financials, adverse credit, older borrowers and people wanting to borrow for business purposes (cash-flow injections, asset purchases or tax payments). Everyone is different and bank’s lending criteria all too often, tries to fit everyone in the same mould, which doesn’t work. The Directors of Southern Cross are very proud that the company has remained profitable right throughout the recent GFC period where most of our competitors have failed. In fact we have been able to continue lending and establish a very successful contributory mortgage company to operate alongside Southern Cross. SCFL Nominees (the contributory mortgage company) allows Southern Cross to assign suitable 1st mortgage deals to investors, thereby freeing up further funds for Southern Cross to lend. The nominee product we have established is very unique in that the investor actually has their name on the title as mortgagee which gives them some extra piece of mind with their investment.
Your 1st Choice for non-Bank Low doc 1st Mortgages • No nonsense fast credit decisions • Minimal Conditions • B ridging Finance, credit impaired, Low doc • B uilders loans & residential development • Small 2nd Mortgages (under $50k) Auckland: P: 09 535-2239 F: 09 535-3639 Wellington: Michael Tresch P: 04 499-1149 F: 04 472-9894 Anytime: Grant Clifton M: 021 440-143 E: grant@scfl.co.nz www.scfl.co.nz
If you would like some more information on how we can assist you and your clients please give the team at Southern Cross a call, Head office 09 535-2239 mob Grant Clifton 021 440-143 or e-mail grant@scfl.co.nz
Digital Special - June 2011