Non-bank lending sector sees growth

Debt advisory head expects traditional bank lending to remain constrained for some time

Non-bank lending sector sees growth

The non-bank sector continues to expand as property lenders are finding it more difficult to secure loans from traditional banks.

Read more: Advisers welcome rise of non-banks in NZ

Traditional borrowing avenues were closing off as regulations instructing banks to hold more capital decreased the appetite for lending, which meant non-bank lenders were filling the gap, said Mark Farrands, head of debt advisory at property services firm, JLL New Zealand.

While most of the new lenders had LVR similar to that of traditional banks, Farrands said they could expect higher interest rates.

“They’re really just filling the void so it’s lending at reasonable ratios at a higher level of return,” Farrands told RNZ. “So if you can’t get the money from a bank and you go non-bank, it’s more expensive. But over time as we see more non-banks start up here, we should see more competition and therefore the margins should squeeze down.”

The JLL New Zealand leader said many of the new non-bank lenders in the New Zealand market were Australian funds. He also said traditional bank lending was likely to remain constrained for some time.

Read next: Non-bank lenders provide a good stepping stone into home ownership, broker

“Under the prevailing economic conditions, the major banks will continue to take a risk-off approach to lending,” Farrands told RNZ. “This will see them reserve capital only for their top-tier customers, leaving a significant funding gap for projects earmarked for development.”

Farrands said this was not something new, as a growing non-bank lending sector would bring New Zealand in line with other nations.

“All over the world is a large non-bank sector which we just haven’t had,” Farrands told RNZ. “Australia has gone through a similar change in their industry over there and we’re just probably two to three years behind them in terms of the change we’re seeing now.”