Alternative loan source thriving

By KEVIN TAYLOR

Three hundred New Zealand families who cannot meet the home loan guidelines of banks have got mortgages through a pioneering Australian company.

Liberty Financial, which specialises in "non-conforming credit", already has a loan book worth $50 million in New Zealand after less than a year in operation.

The company is now settling more than 50 loans a month through brokers and other intermediaries for property, debt consolidation and other purposes.

The average loan size is $125,000 to $130,000 with interest rates ranging between 8.5 per cent and 12 per cent. The average rate is 9.5 per cent.

The major banks are at present offering fixed home loans at just under 7 per cent and floating rates at just under 8 per cent.

Chris Hood, underwriting manager for Liberty Financial's New Zealand operation, said the business generated since the company started in New Zealand last November had exceeded expectations.

Liberty's two products are:

* A floating rate 25-year home loan for those with an incomplete credit history and unable to get a mortgage from a traditional lender.

* Fixed rate loans for a maximum of five years for business, investment or personal purposes to people who cannot verify income or have imperfect credit.

Hood said potential customers included the self-employed, who were often required by traditional lenders to provide tax returns for two years, contractors and the growing number of single households.

He said borrowers - although paying higher rates than to mainstream banks - were paying less in interest than to so-called fringe financiers, who often charged 20 per cent.

"We have written $50 million in settlements in 12 months in a market we've eased into, rather than actively going after every person out there.

"There's huge growth potential. I think you do find the banks are pretty inflexible."

Asked if Liberty was just lending to riskier people, Hood said: "Not necessarily. We find a lot of our clients have had a one-off event that may have had an impact on their ability to repay at that time."

Often the company found a borrower had suffered a family death or an illness that had affected their ability to pay debt in the short-term.

Hood said a margin was built in to reflect the extra risk, but the only alternatives for the types of clients Liberty dealt with were private lenders, who traditionally charged much higher interest rates.

Liberty set up in Australia in 1997 and has a loan portfolio of about A$1 billion ($1.13 billion).


www.libfin.com.au