The New Zealand non-bank sector will move closer to international norm in coming years as main lenders continue to step back, according to the new Pepper Money NZ country head
This article was produced in partnership with Pepper Money New Zealand
Bennett Richardson of New Zealand Adviser asked Campbell Smith, new country head for Pepper Money New Zealand, to highlight issues for the growing non-bank lender and sector overall.
The non-bank sector in New Zealand is a minnow compared to equivalent markets overseas, but this is just one more reason why Pepper Money expects it to grow in the coming few years.
“Globally, many regions feature a large and, in some cases, mature non-bank sector, which New Zealand has not had,” says Campbell Smith, new country head for Pepper Money New Zealand.
Reserve Bank of New Zealand data suggests that the share of home loans from non-banks was just 1.7% in April 2022, compared to historical levels of up to 10% in Australia.
But the level of growth on this side of the Tasman is impressive with the value of non-banks’ home loans up 43% from $3.94bn to $5.66bn in the 12 months to April 2022.
“Pepper Money and other non-bank lenders have enjoyed increasing traction in the market, in line with an increasing awareness and consideration of non-bank finance solutions,” says Smith.
Smith, who was appointed to the top job at Pepper Money New Zealand in May, sees his role as not only advocating for his own company but for the sector at large.
His initial focus is on building the local firm’s distribution footprint, adding value, and improving processes for the financial advisers who have supported the company since its entry to New Zealand in 2019.
This involves driving awareness and making it easy for brokers to use Pepper’s services.
“Ultimately, my focus across the next two years are three pillars: people, process, and technology with a view to continue to add value to our broker partners.”
Expanding Pepper’s presence in New Zealand goes hand in hand with the fortunes of non-banks overall. More Kiwis are realizing that non-banks can offer finance solutions that aren’t limited by the narrowly defined and often inflexible lending criteria at major banks.
Brokers are able to ride on the coattails of this realisation.
“We have seen an uptick in interest from financial advisors since the middle of last year after we launched a simple to use and competitively priced product, and we expect this momentum to continue,” says Smith.
This is partly due to the release of pent-up demand as pandemic restrictions end but also as appetite for lending at mainstream funders continues to wane.
“Under the prevailing economic conditions, the major banks will continue to take a risk-off approach to lending,” says Smith. “This will see them reserve capital for their prime customers only, leaving a significant proportion of the market that is now underserved”.
The major banks withdrawal from certain segments is creating a vacuum that non-banks are actively looking to take advantage of.
“There’s a significant opportunity for increased market share in the non-bank sector,” says Smith.
Increased refinancing plays a role as financial pressure on households ramps up due to inflation and rising interest rates, says Smith. “Non-bank lenders in New Zealand also have an opportunity or point of difference over banking peers to market products to investors, for example, at 80% LVR when the banks are restricted to 60% LVR.”
How quickly and to what degree the pendulum swings away from main banks will come down to market education and awareness among clients of alternative lending options.
This is where advisers play an important role by consistently acting in the best interest of their clients and offering them more options.
Pepper Money has always catered to those who for one reason or another can’t obtain finance from bank channels, but the core if its value proposition is its Credit Cascading Model, which provides three solutions (Prime, Near Prime, or Specialist) aimed at a high probability of conversion.
“It’s like having a lender sitting right beside you, assisting you in finding an option based on your needs.”
Pepper Money makes things easier for advisers too because customers only need to fill out one application to access a range of home loan products rather than reapplying for each.
Smith recommends a pro-active approach as economic conditions shift. Carrying out a health check on the repayment ability of client is key to giving them confidence that they can continue payments and could provide a valuable early warning to recalibrate their finances.
“A review discussion enables advisers to pre-empt the level of extra payments customers could expect, giving them time to rein in their discretionary spending if needed,” he says.
Pepper Money is Australia and New Zealand’s leading non-bank lender. It was established in 2000 as a specialist residential home loan lender in Australia with a focus on providing innovative home loan solutions to customers that were being underserved by traditional lenders. Pepper Money today has a broad product offering of residential home loans, asset finance commercial real estate and novated leases in Australia and residential home loans in New Zealand.
