Mortgage lending criteria is set to tighten further
Getting a bank to approve a mortgage is becoming an increasingly difficult task, and changes to the CCCFA and a potential tightening of lending standards will mean that an increasing number of borrowers will not fit into the ‘tidy’ criteria set out by main banks.
The Reserve Bank of New Zealand announced in August that it will be consulting on ways to tighten mortgage lending standards, which deputy governor Geoff Bascand said will aim to ensure that borrowers are “resilient to a range of future economic and financial conditions.”
Once the consultation is complete, it is likely that debt-to-income restrictions (DTIs), or interest rate floors, will be introduced along with a further tightening of LVR limits, with the Reserve Bank wanting to restrict lending at higher than 80% LVR to just 10% of all new loans - down from 20% at present. With the opportunity for borrowers to get a mortgage with mainstream banks narrowing, the alternative lending sector will no doubt step in to fill demand - something which has already been happening for a number of years.
Commenting on the need for alternative lending products in New Zealand, Avanti Finance CEO Mark Mountcastle said Avanti had been founded with the aim of filling demand for a specific section of the borrower market - a section which looks likely to grow larger in the coming years.
“When we started out, there was a disenfranchised section of the borrowing community who weren’t really getting what they needed from the mainstream banks, and that really hasn’t changed,” Mountcastle said.
“We’re still very much living to that ethos today, and it’s only our ability to service that market, our price points and our suite of products that have gotten a lot broader.”
“We’ve recently moved to bring a bit more scale to the operation, and essentially extend our reach to be able to engage with a broader range of customers,” he explained.
“As time has gone on, what we’ve seen is the finance markets is that the products offered through the banking system tend to be very commoditised and structured. It becomes very much a ‘credit box’ that people get put into, and there are probably two reasons for that - the way they’re funded, and the way they’re structured.”
“As large organisations, the ability to operate a broad distribution base with flexibility around products is quite a challenge,” he said.
“We’re a polar opposite of banks in the sense that we have third party distribution around the country, but all of the intellection work which is applied to our transactions is very much centralised. That gives us the ability to look at things a bit differently, apply a bit more of a nuanced approach, and manage a bit more of that variability.”
Avanti Finance has been operating in New Zealand for over 30 years, and has significantly broadened its product and customer base over that time.
Mountcastle said that the ability to look at every borrower on a case-by-case basis continues to be a key selling point for the firm, particularly as ‘clean cut’ deals become increasingly rare, and most borrowers will have a certain level of nuance to their situation.
“When the company was founded, it was very much around secured and unsecured personal lending and short-term mortgage finance,” Mountcastle said.
“For the first 25 years we saw some slow and steady growth, and built up a good ‘family finance’ business, and we saw some solid growth in the credit space with the lending disciplines and products that we had to offer. We saw those successfully through the GFC, and we were able to supply a consistent level of service to our customers throughout that period.”
“What we’ve discovered over the years is that people’s lives are inherently untidy, and that untidiness just doesn’t fit into those highly structured products,” Mountcastle said.
“So, our ability to deal with that untidiness and come up with a more bespoke approach is really our point of difference, and as banks become more structured over time, the opportunity to do that gets larger.”