Homeowners at risk of having their properties repossessed by their lender are turning to third-tier finance companies to avert a mortgagee sale, OneRoof has been told.
Mortgage adviser Jonathan Battersby, whose company, SOS Non-Bank, specialises in finding private lending solutions for clients who have been refused finance by the banks, has noticed a big uptick in inquiries from stressed homeowners.
He said SOS Non-Bank had so far this year helped around 25 clients who were at risk of losing their homes, up from around five last year.
“Life’s tough for everyone currently with the change in cost of living, interest rates, and employment. Sometimes mum’s had a baby and stopped working. Or somebody’s had an injury at work and can’t continue their employment. People could just be in a situation where they had a self-employed business and the business is gone and [the business loan] is secured against the property. Or people overextend themselves, or they need to consolidate [debt] to make stuff easier and more manageable,” he said.
Start your property search
“I have had quite a lot of dealings with people who have got themselves into strife and have missed payments,” he said, with at-risk clients often receiving a Property Law Act (PLA) notice from their bank, which precedes the home going to mortgagee sale.
Read more:
- Buyer snaps up South Auckland do-up for $764,000, plans to flip it in six weeks
- Mortgage anxiety intensifies: How Kiwi borrowers got caught out by rates shift
- First home buyers told to stay away from $1 reserve auction
“I’m then looking straight away at [third-tier] finance companies or private lenders who would be prepared to understand what's gone wrong for the borrower, to be able to provide them with a term of a loan, of say up to 12 months.”
Third-tier lenders typically charge higher interest rates than the major banks and second-tier lenders, such as Bluestone or Avanti, and are usually smaller institutions that are willing to take on higher-risk customers.
Many of the homeowners seeking third-tier lending solutions are trying to buy themselves time and stave-off a mortgagee sale. “Maybe they haven’t been able to sell because the market’s rubbish, and they just need more time. Or it is case of, ‘Hey, we’ve got a big injection of cash coming but it's not coming for quite a few months.’ Maybe there’s money tied up in probate of a will or a property that was bequeathed to somebody and that’s not selling,” Battersby said.
He said there was a lot of emotion involved when dealing with those who at risk of their losing their home. “It causes people to be really stressed. In my role, you have to learn to cut through the emotion and look at how we are going to make this happen,” he said.
However, not all third-tier lenders are prepared to consider clients with a PLA notice and it’s not always possible to find finance if the owner’s property has fallen in value, leaving insufficient or negative equity. “If we can help, we do. But getting [a home loan] to service isn't always easy,” Battersby said.
Battersby is not alone in seeing an uptick in mortgage stress, with data from credit bureau Equifax showing the number of mortgage accounts currently in arrears now sitting above pre-pandemic levels.
EasyStreet mortgage adviser Gareth Veale said the jump in mortgage rates, from below 3% to above 7%, had hit homeowners hard. “Despite what banks think, not everyone can afford to pay that. Not everyone has the fat to weather the storm,” Veale said.
EasyStreet mortgage adviser Gareth Veale: “I have clients who are hurting.” Photo / Supplied
“Christchurch is a lot better because it wasn't so out of whack in terms of the average loan value. But I have clients in Hamilton and Auckland who are hurting with the knowledge that their mortgage isn't really much less than what the value of their house is.”
He said he had been able to avert the worst-case scenario for some at-risk clients. “What I've tried to do is catch them before they fail. We've been able to do things around the margins. For example banks are being more open to interest-only terms.”
Ray White Manukau agent Rubal Singh said property traders in particular were finding themselves in trouble with mortgages. Some bought in 2021 expecting to resell at a profit, but haven’t been able to. One investor put five properties up for sale at once, needing to sell three. Two sold at auction on July 4, and one more is under contract.
Singh said he had turned down listings for properties where the trader was likely to take large losses because he didn’t want to make promises he might not be able to fulfil. “I choose my clients a bit carefully. There have been people where there’s going to be massive losses if they sell now.”
He cites an example of two neighbouring South Auckland properties bought by a trader. “They were struggling because they got money from a private lender, which was at a horrific interest rate.” Singh said the client was paying in excess of 13% and he chose not to list the property because he didn’t want to make false promises.
Some clients were finding ways to continue to hold properties in the hope that the market picked up. “There are a few clients who are arranging money from overseas to hold on for another year or so,” he said.
Singh says it was extremely unlikely that most clients would have predicted when they bought that interest rates would more than double in less than two years. “No one saw that one coming,” he said.
In addition to fire sales, Singh is aware of sales where the buyer failed to settle. “Some of these cases will be going to the court,” he said.
Explore the latest mortgage rates with our interactive. Use the search field to find out the best deals available today.
