Advisers still face a "tightened reins" credit-seeking experience, but a new industry has evolved in response
COVID-19 has disrupted BAU for mortgage advisers. Main bank credit availability has tightened, and Tony Alexander’s August survey of mortgage advisers has revealed that the credit-seeking experience has remained one of ‘tightened reins’ on the part of lenders.
It’s no secret that things have become harder for many mortgage advisers – particularly those with customers relying on variable income that otherwise would have been a great main bank option.
Thankfully, the industry has evolved and adapted with new products to fulfill client needs. Let us introduce you to the market of near prime, and how you can use it to earn the reputation of an adviser who can find good solutions even when life may be a little different.
What is near prime?
Many advisers will already be familiar with the near prime market as it’s been around for a while in Australia, and has been building here over the last few years. Since it’s newer in New Zealand, here’s a simple definition:
Near prime describes a borrower who falls just outside of ‘prime’ criteria.
Near prime borrowers may have good borrowing history, good incomes, good equity positions, but changes in main bank credit availability has just pushed them outside of the prime lending market.
This can be frustrating for clients - who wouldn’t be annoyed? They feel like the rug has been pulled out from under them when their adviser tells them that prime lenders aren’t interested, despite their apparent, or what would have traditionally been, strong credit position.
This is especially true for those Kiwis who are keen to take advantage of the low interest rate environment to buy a property: either their first or new home, or to expand their investment portfolio.
But where there are frustrated clients, there’s opportunity - if you know where to look.
Near-prime products: a timely solution
If there’s a near-prime market, there are near-prime products. These are home loans, available right now, that are designed specifically to serve this portion of the borrowing population.
These near prime mortgages have:
- Interest rates lower than typical specialist non-bank offers, busting the myth that non-bank lenders can’t provide reasonable and competitive rates.
- Approval processes that don’t rely on the ever-shrinking number of ‘standard’ borrowing situations. Less box-ticking here.
- Broad borrowing ranges to help everyone from first home buyers in Dunedin to investors in Auckland.
An obvious reality for advisers is that regardless of the strong offer and solution being provided by a non-bank, their client may be nervous or concerned as they don’t know the lender.
This is where advisers could have challenges.
Making near prime work
Advisers may have a client that fits near prime, but will typically pursue the prime lenders first, telling their clients that they’ll try and secure something from a ‘main bank’. The client feels comfortable and secure, but if the adviser comes back with rejections, they then have to explain that they have to consider a non-bank lender.
That’s where clients can get turned off or nervous.
The solution is simple: bring the non-banks into the conversation early. We suggest explaining the benefits and advantages of applying for a near-prime deal given the current lending market.
This defeats the disappointment that every client feels when they get a rejection, and counters the concern of having to go with their ’second choice’ of near prime.
It’s a simple change, but it can make all the difference to client satisfaction.
As credit availability remains tight, savvy advisers are turning to non-bank lenders to provide the competitive near prime products their customers really need.
But it isn’t just up to the non-banks. Mortgage advisers have a big part to play in introducing these near-prime products early in the process; to present them as a genuine and realistic alternative, not a distant second choice.
For more information on near prime mortgages and how they could help your clients, head to https://www.avantifinance.co.nz/introducers/mortgage-adviser/ and get in touch with Avanti Finance’s borrowing team.