"I call it being Captain Sensible"
In home lending, some deals are straightforward – steady employment, clean credit, a 20% deposit. Others require the financial equivalent of emergency surgery. That's where mortgage advisers like iLender’s Jeff Royle come in, operating as what he calls a "financial paramedic" for borrowers who don't fit the banks' neat boxes.
After three decades navigating the non-bank lending space, Royle has seen every conceivable mortgage complication. Self-employed borrowers with patchy income documentation, buyers with credit hiccups, overseas Kiwis trying to purchase back home – the cases that make bank managers reach for the "decline" stamp.
Speaking to NZ Adviser, Royle shares his insights on navigating complex deals, applying common-sense assessment, and getting problem borrowers back on track.
When banks won’t bite
Banks are cautious by nature. Their appetite for risk is low, and their policies are rigid. That leaves a significant group of borrowers – often self-employed, overseas Kiwis, or people with a few dings on their credit – out in the cold.
Royle noted that Kiwis living overseas face particular challenges when trying to buy property back home, with banks applying wildly different assessment criteria to foreign-sourced income.
"We're seeing a lot of overseas Kiwis buying back home, and banks can be funny with that," Royle said.
"If you're in Sydney and earning $100k per year PAYE, some banks will only use around 55% of your income when it comes to debt servicing. Kiwibank is one that uses 100% of your gross income for debt servicing. That's a huge difference between banks. Many banks also won't lend if you're overseas and self-employed, while some non-banks will.”
The post-COVID landscape has also created another category of distressed borrowers – small business owners who took on high-interest emergency funding to survive the economic turbulence. This has resulted in an increase in restructurings to get people back onto lender-friendly terms.
“You could be looking at north of 30% in interest rates on some of these loans,” Royle said. “I’m doing a lot of refinancing, clearing the decks and getting people back on track.”
The common sense test
While non-banks tend to be more flexible than the major players, their bar isn’t low. For Royle, looking at a deal means applying a level of “gut instinct” to determine whether or not it makes sense.
Take a sole trader roofer who's been operating for 18 months and declares $150,000 income. Red flags should be waving. "That would raise alarm bells," Royle says. "I call it being Captain Sensible. It is about looking at the application and running your 'does it make sense?' calculator over it.”
Credit history adds another layer of complexity, particularly as New Zealand's credit reporting system evolves. The traditional focus on negative events – defaults and collections – is being supplemented by positive credit reporting that tracks payment patterns on credit cards and loans.
“You always look for a good track record of paying bills and debts,” Royle said. “That’s what all assessors at lenders look at. If someone has no debts and no commitments and we’re suddenly putting $5k around their neck – is that really the right thing to do? It’s really a balance that depends on what you see.”
Getting back on track
For many borrowers, the path to approval involves some uncomfortable home truths about their financial habits. The advice isn't always what people want to hear, but it's often fairly straightforward.
For borrowers, getting as close as possible to a 20% deposit is key. It opens up a much broader (and cheaper) suite of options across lenders, even when other aspects of the deal, such as self-employment, are non-traditional.
“Often, the advice is easy,” Royle said. “If you don’t have a high enough deposit, you need to cut your spending and put more into your savings. 20% is the magic figure for low-doc self-employed clients, because then you’ll qualify for the discounted interest rates, cash back offers, etc. These clients can get higher LVR deals, but that’s ultimately more expensive.”
The devil, as always, is in the details. Outstanding collections can derail applications before they start, and poor account conduct tells its own story about financial discipline.
While lenders largely won’t count the number of times you ordered Uber Eats anymore, Royle said that sometimes, the issues are still glaringly obvious.
“Sometimes you’ll see dozens of entries on a bank statement for online gambling services,” he said. “Obviously, that has to stop. If you have collections, get rid of them first. In a lender’s mind, if you’re not managing a $5k credit card limit, how can you manage a $400k debt?”
“Sometimes, the financials are only just falling short of what’s needed to get to a bank,” he said. “You can usually give some basic advice on what to do to make things more bank-friendly.”
