New Zealand borrowers are increasingly earning, investing and structuring their finances in ways that do not fit neatly into traditional lending models, placing greater importance on individual assessment and specialist expertise.
The idea of a ‘typical’ borrower is becoming increasingly difficult to define. Alongside traditional PAYE applicants, advisers are working with self-employed clients, business owners, property developers, returning New Zealanders, migrants and investors with income and assets spread across multiple entities.
Family and property arrangements are also changing. Multi-generational households, blended families, business succession, relationship separations and borrowers purchasing with others can all add further layers to an application.
Ian Boyce (pictured, left), General Manager of Property at Avanti Finance, says the difficulty for many of these borrowers is not necessarily the strength of their position. Instead, it is whether a lender’s processes allow that strength to be recognised.
“The challenge for these borrowers is often not credit quality, but lenders’ ability to assess their circumstances holistically.
“As a specialist lender, we take a pragmatic approach to credit assessment, working closely with advisers to understand the full picture, including serviceability, security arrangements, repayment plans and exit strategy. This allows us to identify strengths and mitigants that may not be immediately apparent and find a pathway forward that helps the client achieve their goals.”
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Borrower circumstances are moving beyond standard income calculations
Avanti Finance is seeing borrowers with a wide range of circumstances that can challenge traditional assessment models. These include long-term tenants seeking to purchase the homes they currently rent, clients requiring short-term bridging finance, those who have experienced minor credit issues in the past, and clients managing tax or IRD-related matters as part of a broader financial reset.
At the same time, more applications involve self-employment, offshore income and portfolios spanning several properties, businesses or income streams.
Luke Jackson (pictured, right), CEO of Go Lend, says the growth of small business is contributing to this change.
“Small business is becoming an increasingly large part of the New Zealand market. In many ways traditional lenders’ policies are based on PAYE-type incomes, when many borrowers now require more commercial understanding from their lenders.”
Boyce says evolving work, family and investment patterns are likely to make applications even more varied. Avanti Finance is seeing blended family arrangements, interconnected business transactions and succession plans in which ownership is moving to the next generation while parents retain an income or equity interest.
Economic pressures are also contributing to separation and property buyout situations. In these cases, the borrower’s equity, security and history of meeting commitments may be as important as the result produced by a standard income calculation.
“This trend is likely to continue. For advisers, it reinforces the importance of understanding the full client story, clearly communicating strengths and mitigants, and recognising when flexibility, speed, and a tailored approach may deliver the best outcome.
“And for lenders, it requires the expertise to assess all the moving parts, ask the right questions upfront and structure solutions that meet the needs of borrowers while maintaining responsible lending standards.”
Start with the borrower’s goal, not the lender’s checklist
Jackson believes advisers can create greater value by beginning with what the client wants to accomplish rather than concentrating solely on whether the application meets a mainstream policy.
“I think it is important to focus on the borrower’s actual goals and objectives. Often a client can achieve their goals faster and more efficiently by using lenders who specialise in the non-vanilla, as opposed to waiting until every box can be ticked by a traditional lender.”
That difference can be particularly important for borrowers attempting to take advantage of time-sensitive opportunities. Go Lend has seen clients with capital available seeking to acquire well-priced properties in a subdued market. However, some require interest capitalisation to support cash flow during a shorter-term strategy.
Those structures, and the speed with which funding may need to be provided, do not always fit traditional lending models.
“Clients are looking for assistance on achieving their goals, not just someone to facilitate the cheapest rate on their current position. By exploring these goals, and in many cases, expediting them using specialist lenders, advisers add significant value for their clients.”
Advisers missing full context of complex applications
Assessing a complex borrower requires advisers to look across the client’s entire financial position. That can include their different income sources, account conduct, equity, security, business interests, repayment strategy and the reasons behind any unusual transactions or recent financial events.
How clearly that information is presented can make a material difference. Both Boyce and Jackson say lenders need to understand the purpose and context of an application from the outset.
“The clear purpose of lending could in some cases be better explained,” Jackson says.
“Often clients will be leveraging one asset to assist other business funding requirements; getting the full picture of this earlier definitely helps.”
Avanti Finance recently worked with experienced property investors refinancing a completed mixed-use redevelopment. The clients wanted to retain six newly created apartments as long-term rentals but were self-employed and received both local and overseas rental income. Main banks viewed the property as commercial and offered only higher-priced, short-term options.
“The adviser approached us with a well-prepared and clearly documented application, allowing us to fully understand the clients’ financial position and identify several mitigants.
“As a result, we were able to support the clients’ transition from development finance to a long-term investment strategy, helping them retain the completed apartments as part of their rental portfolio.”
The lesson for advisers is that complexity should be explained rather than left for an assessor to uncover. Information about related parties, ownership changes, connected businesses, unusual income movements and financial commitments can prevent unnecessary questions and delays.
Individual assessment does not mean lowering lending standards
Greater flexibility must still sit alongside responsible lending obligations. For Boyce, individual assessment is about applying standards intelligently, based on the evidence and the borrower’s actual position.
“A more individualised approach doesn’t mean lowering standards. It means taking the time to understand the client’s circumstances in full, considering the available evidence, and determining whether serviceability can be appropriately demonstrated.
“The key is balancing common-sense credit assessment with prudent risk management. By understanding the full context, identifying mitigants, and ensuring a clear repayment or exit strategy, lenders can support outcomes that are both practical and responsible.”
Jackson says the range of specialist lenders in the market allows providers to develop products around more specific borrower needs.
“Specialised lenders are usually smaller in nature, but higher in number, than the larger traditional lenders. As an industry, this enables each specialist lender to build responsible products that are more customised to a particular individual borrower need.”
However, a wider lender market also creates a knowledge challenge for advisers.
“The increasing number of specialist lenders in New Zealand does open up greater opportunities for advisers to assist in more situations,” adds Jackson.
“However, I appreciate understanding, and keeping updated with, the nuances of each of these lenders can be challenging for advisers.”
Specialist lending becomes a strategy, not a last resort
As borrower profiles become more varied, specialist lending is moving closer to the centre of the lending landscape. Its value is not simply in approving applications that a bank has declined, but in offering structures aligned with a client’s immediate circumstances and longer-term goals.
“Rather than positioning specialist lending as a ‘Plan B’, advisers should consider at the outset whether it is the best solution for a client’s current circumstances. Many borrowers who fall outside standard bank criteria still have strong lending propositions, but their circumstances require a more flexible and nuanced assessment.
“Many successful business owners, property investors, developers and home buyers use specialist lending because it offers flexibility that better aligns with their needs. Sometimes it helps a client achieve an immediate objective while creating a pathway back to mainstream lending in the future.
