Banks getting tougher on riskier borrowers, lender says
General Finance, niche home loan lender, says banks getting tough on riskier borrowers
By Jonathan Underhill
Nov. 3 (BusinessDesk) - General Finance
says banks are taking a tougher line on some riskier
borrowers, creating an opportunity for the niche mortgage
lender to offer bridging finance that could help them
restore their credit profile.
The small Auckland-based lender, with a loan book of about $9.2 million, says anecdotal evidence from people who've been turned down by banks is that the mainstream lenders are enforcing tight rules on credit and some of those rejected had "one-off" reasons for poor credit such as a business failure or a divorce, said director William Cairns. Loan receivables have climbed from just $4.7 million in 2011.
General
Finance typically offers interest-only loans of six to 18
months, the classic contract being someone moving city and
buying a house before their old property is sold. But the
borrower could also be someone wanting to restore their
credit profile so they can borrow from a bank at a lower
interest rate than the finance company offers. In effect, it
is like a learner's licence - at the end of a 12-month term,
any credit issues are a year older, "and if our payments
have been met in a timely manner, the loan should be able to
be refinanced to a mainstream lender," Cairns
said.
Under new financing law, General Finance offers
two types of loans - regulated, which would be to 'mums and
dads' buying a house to live in and attracts an interest
rate of 12.95 percent - and unregulated loans for a business
purpose or for rental income, at 10.95 percent.
According to General Finance's most recent prospectus, the actual interest rate on loan receivables was 11.45 percent to 16.5 percent in the year ended March 31. The weighted average rate on its $8.4 million of debenture stock as at March 31 was 6.47 percent. The company had a profit of $308,111 last year, from $205,050 a year earlier. Revenue rose 9 percent to $1.5 million, mainly driven by interest income.
General Finance sold its prime loan book some
years ago and total loans outstanding has shrunk from a peak
of $400 million of loans it administered in 2007. Cairns
said the firm is one of about nine left, from 65 before the
crisis led to the collapse of many New Zealand finance
companies.
(BusinessDesk)