One of the questions is how will these businesses weather a downturn?
Bluestone’s New Zealand manager Peter Wood reckons pretty well. He says all its applications are through "a serviceability model" before deciding whether to lend.
"One thing that gives us a great deal of comfort is that when we put our borrowers through our serviceability calculation, we build in a greater amount (than the loan). Therefore, we know if interest rates shift, we’re still in a comfortable scenario,” Wood says. “We think we’re in a pretty secure position.".
He says overseas trends combined with the composition of the New Zealand economy make this country look quite attractive to providers of non-conforming loans.
Between 15 and 20% of all mortgages written in the US are non-conforming lenders, between 8% and 9% in Britain and between 4% and 5% in Australia.
He estimates the New Zealand market, once mature, could be worth between $500 million and $1 billion.
About 60% of his company’s business, since it started in New Zealand last year, is with the self-employed, between 30% to 35% with those with bad credit histories or previous bankruptcy and the rest is made up of a number of niches including new immigrants without financial track records, borrowers 55 years or older and people looking to consolidate a number of debts.
Wood says the 2001 census showed 13% of New Zealand’s workforce is self-employed, more than the about 11% in Australia. "That's one thing that attracted us to this market," he says.
Those with poor credit records aren’t necessarily bad risks to lend to – a self-employed person might have had a disagreement with a supplier which explained their credit impairment, Wood says.
"Just because they’ve had a (credit) blip, doesn’t mean that they’re bad people or that they can’t pay a mortgage. It’s a medium term proposition, three or four years, and during that time they rehabilitate themselves."
Why wouldn’t a self-employed person provide full accounts? "A lot of them a very bad at getting their records to their accountants. A lot of them try to minimise their income for tax – their income might be well above what they show in their accounts," he says.
Bluestone’s borrowers pay for the privilege. While the five major banks’ floating rate homeloans are currently between 7.05% and 7.10%, Bluestone’s floating rate currently ranges between 7.49% and 11.6%, depending on the comprehensiveness of records and degree of credit impairment.
