Second-tier lenders are proving a useful option for some struggling home-buyers and homeowners - including those going to mortgagee sales.

"Second-tier" usually refers to non-bank lenders, such as Liberty and Pepper Money, that offer home loans and other lending. They usually charge higher interest rates but may have different lending criteria to that of the banks.

Mortgage adviser Karen Tatterson, from Loan Market, said it was common that people facing a mortgagee sale would look for help from a second-tier lender instead.

"Many times the owners leave the investigation via a mortgage adviser too late in the process. This results in the property being listed and then cancelled once second tier lending has been approved."

Barfoot & Thompson said about 15 percent of mortgagee sales were stopped because agreements had been made for the owner to keep the property or there was a court injunction.

Tatterson said opting for a non-bank lender was only a short-term solution for many but enables them to hold onto their home.

Usually after a short period - minimum of six months - the home loan is refinanced from the second tier lender back to a main bank.

Liberty is advertising a floating rate of 8.15 percent, a two-year rate of 7.75 percent and a one-year rate of 8.05 percent.

That compares to 7.39 percent floating at ASB, 5.49 percent for two years and 5.79 percent for one.

Key Mortgages adviser Jeremy Andrews said he had done more second-tier lending over the last six months than ever before.

"Typically second tier lending is priced as floating with options of fixed rates typically fewer and less attractive, so this might be off putting in a rising interest rate market. But this is more attractive right now while in a falling interest rates market.

"Some advantages of second tier lenders are they can consider out of the box incomes and scenarios. Sometimes clients with strong equity can borrow and 'capitalise' their interest costs (have these added onto the loan) without being able to technically service the loan in the short term. This typically requires an 'exit strategy' such as selling the property in the short to medium term or other funds or steady income to be coming later."

He said there could be fees associated with the lender ranging from a few hundred dollars to thousands, or sometimes 2 percent or 3 percent of the total loan value.

"With main bank timeframes stretching out last year to often weeks turnaround times, second tiers can sometimes approve lending much quicker too."

He said the last three second-tier loans he organised were all at rates below 8 percent but they would increase as the borrower's rick profile did.

Reserve Bank data shows the amount of housing lending by non-bank institutions has dropped from $6.05 billion in November 2022 to $5.4b in November last year. It appears to fluctuate - dropping to $5.015b in November 2023 then picking up to $5.78b in July last year.

Squirrel chief executive David Cunningham said mortgagee sales were still so infrequent that he had not seen any.

He said it was a small part of the market because banks did a good job and were price-competitive.

"The non-bank lenders need a bigger margin to cover wholesale funding costs. So they get the 'dregs' - often good quality but a bit outside the square."

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