Top 5 non-bank lenders

Can’t get a mortgage from the bank? A non-bank lender might be able to help.

Non-banks are businesses that provide home loans to borrowers who might not get approved by a bank.

In the past some people have had the perception that they are “dodgy” or “second-rate.” However, as banks start to tighten their mortgage criteria, non-banks are starting to shine as an alternative. They are legal, regulated and run by finance experts.

If you’ve recently been declined a mortgage and are contemplating turning to a non-bank, this article will break down our picks for the top 5 non-bank lenders in the country.

Disclaimer: Just remember that all non-bank interest rates and fees are based on your individual application.

So the rates mentioned here will give you an idea of what you might pay. However, you may pay more or less based on when you put in your application, and the risk you’re seen to pose to the non-bank.

If you have any questions or thoughts, please leave them in the comments section below.

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How is a non-bank lender different from a bank?

Banks and non-banks will lend you money to purchase a residential property. That could be for you to live in yourself or as an investment, but there are some key differences.

• Non-banks don’t do credit cards, term deposits or other ‘bank-type’ product. They just do home loans.

• Because they’re smaller, non-banks come out with different mortgage structures and interest rates that fit different types of people.

• Their approach is also different. They take more of a risk-based approach. Where if you pose more risk, you get charged a higher interest rate.

For a more detailed look at non-banks visit our article: Non-Bank Lender vs Bank – Which One Am I Better Off With?

In no particular order, here is a list of our top 5 choices for non-bank lenders in the country.

#1 Resimac

We’ll start with Resimac because it’s probably the most well known non-bank lender. Their lending policies are also the closest to the main banks.

Resimac is a great fit for long term buy-and-hold investors. But it also has products to suit:

• First home buyers

• The “mum-and-dad” investor just starting out

• More experienced investors with 15 or so properties.

For instance, their 80/80 loan might suit “mum-and-dad” investors. This is where they will lend up to 80% LVR on up to 5 investment properties. This is a game changer for some investors, as the main banks will only offer up to 60% LVR on existing properties.

What does that really mean for “mum and dad” investors? They can potentially purchase existing investment properties with a much smaller deposit if they use Resimac, compared to a main bank.

Of course the investor will pay a price for this, in a higher interest rate, and they need to have their own home with Resimac. But, if you meet the criteria, it can be a great option.

Resimac is also a good fit for those struggling to get their mortgage approved from a main bank under the CCCFA. That’s because they follow a pragmatic approach and look at each application on a case-by-case basis.

For example, there is the option available for investors to apply for a “no bank statements” loan. This is a far cry from a main bank’s request for 3 to 6 months of statements (which they then interrogate line by line).

And while non-bank lenders do charge higher interest rates, Resimac’s standard “prime” 1-year fixed home loan rate is currently 3.89%. This is competitive considering that same 1-year rate at BNZ and ANZ are both 3.65% at the time of writing.

As with any other non-bank, extra fees do apply to all successful loan applications. These include:

• Application fee – e.g. $399

• Settlement fee – e.g. $199

• Discharge fee – e.g. $250

#2 Squirrel money

Squirrel Money is a non-bank lender started out of Squirrel (the mortgage brokers), who also feature on our Top 10 Mortgage Brokers list.

Squirrel markets itself as seeing people as humans, not a pile of paperwork on a desk. In real terms that means assessing your application on a case-by-case basis. They’ll make a judgement call on your application, rather than having a strict formula for saying “yes” or “no.”

One of their products – Squirrel Launchpad – is specifically designed for first-home buyers who are struggling to pull together the 20% deposit banks require.

Some loans are approved with as little as 5% deposit. However, these will only be approved for borrowers with “strong income” so Squirrel knows you can afford the higher loan.

These are “two-tiered” loans, where Squirrel will lend you the first 80% of the loan at a lower interest rate e.g. 1-year fixed interest rate at 4.24%.

They’ll then lend you the extra 15%, at 9.95%, which they require you to pay off within 5 years. Obviously the higher interest rate means you pay a bit more, but the benefit is you get into your home more quickly.

But that’s not the only loan product they have. They have products to suit those looking at:

• Tiny-house loans (this is very unique. Most banks won’t fund these)

• Small-scale developments

• One-off residential builds

As with every non-bank, Squirrel Money charges an establishment fee – inclusive of legal fees – that is charged and deducted from the loan in advance.

The price varies depending on the type of loan you sign for. For example, a home loan establishment fee is $950, but a first-home loan is $1000.

#3 Basecorp

Basecorp are unique in that you can choose a loan ranging in length from just 1 month, to 30 years.

This is why Basecorp is an attractive option for flippers. These are investors who buy a property, renovate and then sell quickly.

Why are they so attractive to flippers? Generally speaking, main banks don’t like to lend to people who flip properties. It takes a fair bit of work for a bank to approve your mortgage, but they make their money back over 30-odd years, charging you interest.

So, if you buy and sell a property within a few months and pay back the mortgage quickly, the bank doesn’t make a lot of money because they spent so much approving the mortgage.

That’s why Basecorp’s interest rates are higher if your loan is shorter. Here is an example of interest rate ranges you can expect:

• Shorter terms rates range from 7.5% to 11.5%.

• Longer term rates range from 5.79% to 6.99%

For short-term flippers there are often high set-up fees. As well as charging the higher interest, they’ll charge a 1% set-up fee. So if your mortgage is $600k, they’ll charge a $6k set-up fee.

#4 Pepper money

What we like most about Pepper Money is how fast they work. In some instances they will give you an answer on your mortgage application within 24-48 hours. This works well for borrowers who need a quick answer.

Pepper Money also works well for people who are self-employed because all applications work off only the last six months of income rather than the full financials of the last 2 years.

This is helpful for businesses that have had good income over the last 6 months, but had a rough time during Covid. That’s because in this case Pepper Money would take a better view of your ability to pay back the loan than a bank would.

Pepper also considers other bank loan payments at face value, rather than testing at a higher rate. That sounds small and technical, but is MASSIVE for investors who have a couple of properties with mortgages at different banks.

For example, if you’re paying interest-only on your lending with other banks then they’ll take that into account for servicing. Whereas a bank would test all that lending on principal and interest and at a higher interest rate.

Pepper Money charges $1499 for its establishment fee. There is also a $10 monthly administration fee.

#5 Liberty finance

Last on our list is Liberty Finance. Liberty is an Australian-owned non-bank lender, but is smaller compared to its competitors, Resimac and Pepper Money.

If you are prepared to take on some higher interest rates over the short term, Liberty has options for self-employed borrowers or first-home buyers. Let’s explain what we mean by that.

For self-employed borrowers, there is the “no doc” (no documents) loan, which is exactly what it says on the tin. You don’t need to provide proof of income and can “self certify.” That means you can tell the lender what you earn, without needing to prove it.

Why would that be useful? Some people have variable incomes, for instance people earning lots of bonuses or commission, or again business owners where their income goes up or down.

What’s the catch for this amazing sounding loan? Well, the starting interest rate is 10%. Yes, this is expensive, but after 6 months of making payments, the rate drops to the prime rate (4.84% currently) for good behaviour. So, if you pay all your payments on time, every time for the first 6 months, you get the cheaper interest rate.

First home buyers can also get approved with only a 10% deposit using Liberty Boost, which offers a similar type loan to Squirrel Launchpad.

This means 80% of your loan term is on their prime rates of 4.64% fixed. But the remaining 10% is on a higher rate, currently 15.49%, which you need to pay off over 7 years.

Again, yes this is a higher cost. But if you are in a position to get that 10% paid off quickly, it might be worth it to get into your first home.

So which one should I use?

These 5 non-banks are just a sample of the options for home buyers out there. While a bank may say no today, that doesn’t mean you can’t get the money to purchase property.

There are many others, each offering different products to suit different situations. Sometimes getting a more expensive loan is better than getting no loan at all.

The main takeaway here is: there may be genuine options available to you.

A “no” from the bank no longer means game over.

So, if you’re self-employed, a first home buyer, or if you don’t fit the tidy boxes set by the bank – then speak to a mortgage broker about which non-bank might be the best suit for you.

A mortgage broker will advise on which of these lenders best fits your situation, and which products will work for you. If you need a recommendation for a good mortgage broker, check out our list of the top 10 mortgage brokers in New Zealand.