Bank interest rates for 'unbankable' clients

by NZ Adviser08 Dec 2020

With interest rates at historical lows and possibly going lower on the back of a potential negative official cash rate, it’s a good time to be a borrower in New Zealand.

It seems that every other week, there’s a new record interest rate drop or a new mortgage product designed to make credit cheaper for borrowers. Had you told someone a year ago that some lenders would be offering record low rates during a global pandemic, you wouldn’t have been believed.

In the last 12 months alone, we’ve seen:

  • The official cash rate slashed from 1.75% to 0.25% with indications it could go into negatives for the first time next year.
  • The removal of loan-to-value ratios by the Reserve Bank for both owner-occupiers and investors.
  • Housing and personal consumer lending breaching $300bil over a single month; a new record.

Credit seems to be everywhere - but it isn’t available to everyone.

Under the surface

Mortgage advisers will be familiar with this scenario:

  1. A new client feels confident in their financial situation and certain that they’ll qualify for these new extra-low interest rates they’ve been reading about.
  2. The adviser reviews their position and profile, nods in approval, and sends those applications out to a few select banks.
  3. The banks return with rejections. Those clients weren’t as bankable as first thought, despite what would’ve been a strong position in the past. The adviser has to break the news, and the clients are disappointed.

According to Steve Massey, Head of Distribution at non-bank lender Avanti Finance, it’s becoming more common.

“It’s happening more and more in the current climate,” he says.

“Even existing bank clients, who assume their own bank will continue to support them, are being told no.”

“As the banks wrestle with this COVID world, new capital requirements and on-going scrutiny as the property market continues to surge, means they are - at times - taking a very black and white approach to new lending opportunities.”

What’s the solution?

Those who are just shy of the bank’s criteria are missing out on opportunities for low cost credit - but there are alternatives. Advisers are turning to non-bank lenders instead, several of which have recently released ‘near prime’ or ‘alt prime’ products.

These mortgage offerings provide those tantalisingly low interest rates, in some cases at or even below main bank rates, but with broader lending criteria - particularly handy for those in unusual/complex lending situations, or those who rely on self-employed or overseas income. Returning New Zealanders on the run from COVID are finding the non-banks especially supportive.

It’s important for advisers to introduce these non-bank options early for maximum effect. If an adviser waits for the negative results from the bank first, it creates an equally negative experience for the client - not to mention a longer wait as applications are sent out again.

Instead, advisers should look to introduce near-prime products to their clients earlier in the process, at the same time they present the main bank options. This avoids the awkwardness of needing to sell the ‘second choice’, and with near prime interest rates at a similar level (or lower) to prime banks, there’s no reason not to present them at the same time.

With the right products, you can be confident in finding a solution for even unbankable clients.

It’s a good time to be a borrower, and with additional options in the form of near prime, there are options for everyone. If your client is in an unbankable position, but still wants to take advantage of an excellent borrowing environment, contact Avanti Finance to add near prime to your toolbox.

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