Are you locked out of the property finance market?
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Articles by Kris Pedersen
Over the last few years it has become harder for property investors and developers to obtain the funding they need. In spite of low interest rates, some good opportunities in the property market and a high demand for new housing (especially in Auckland), it has become more and more difficult to get funding from the main banks. So is there a solution?
Non-bank lenders
Non-bank lenders have been on the scene for a long time, but since the Global Financial Crisis of a decade ago they haven’t played as much of a part in the New Zealand mortgage landscape. In fact, according to data collected by the Reserve Bank (RBNZ), this segment reduced from over 5% market share in mid-2008 to being well under the 1% mark by early 2016.
Whilst the growth since then has hardly been earth-shattering, the lending in this part of the market has been increasing. Several factors have caused this:
• The LVR restrictions imposed on banks by the RBNZ.
• Debt servicing requirements being much more onerous than they were only a couple of years ago. This is likely due to pressure on banks, having been told that if they didn’t tighten their lending criteria, a debt-to-income rule may be applied to their lending.
• Issues across the Tasman, such as the damning Royal Commission investigation into their banks and the corresponding tightening of lending criteria in their New Zealand-based subsidiaries.
This is even before we get into potential increased capital requirements that may be imposed on the main banks and which analysts believe would result in a lift in interest rates.
All of this has made it more difficult for investors to obtain finance from the main banks. As a result, what we have seen at Kris Pedersen Mortgages over the last couple of years is more entrants coming into the non-bank space because they identify the opportunity to create solutions that fill this hole. Traditionally, non-bank lenders have been more expensive, but their pricing is now slowly improving to meet customer demand.
Short-term lending solutions for development finance
Solutions have come in specifically to fill part of the development funding area, which banks had restricted. There are now numerous asset lenders in place to cover short-term bridging finance and funding for property traders who can’t meet the debt servicing required elsewhere.
But what about longer-term finance options?
There have been a couple of ‘prime’ non-bank options in the market for a while now who appear to provide the solutions the market has needed. Unfortunately, in most cases these lenders haven’t delivered on what was promised because of their own restrictive requirements.
However, there is light on the horizon. At KPM we have been working with a lender behind the scenes who we think will solve a lot of these issues and open doors at a reasonable price for those of you who have been locked out of the market.
Come along to the Property Leaders One Day Event on May 26, where I will be discussing why you need to understand this market and I'll reveal the new solutions which are coming.
Kris Pedersen
Kris Pedersen Mortgages
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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