General Finance, niche home loan lender, says banks getting tough on riskier borrowers

Tuesday 3rd November 2015

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.co.nz

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