More and more Kiwis want the mortgage flexibility banks can't give

If you want groceries, you go to a supermarket. If you want a mortgage, you go to a… well, hold that thought.

For an increasing number of New Zealanders, that sentence doesn’t end with ‘bank’. Like many countries around the world, more people here are turning to private credit institutions because they offer a more individual, solution-focused service than traditional sources of finance, says Paul Bendall, CEO of First Mortgage Trust (FMT).

And on the other side of the coin – literally – people with a nest-egg that can be as small as $500 are choosing to place their savings, and trust, in private credit fund managers.

Bendall says while the private credit industry is becoming an increasingly important alternative to traditional banking that can offer significant benefits, it’s often not well understood by the public.

“The banking landscape is changing rapidly and it's important for Kiwis to understand these shifts. While overseas markets are more advanced, New Zealand is catching up,” he says.

As banks face increasing regulatory restrictions, private credit providers like FMT are stepping in to provide essential funding to individuals and businesses, aligning with the Commerce Commission’s recent study highlighting the need for more competition and innovation in the lending industry.

For borrowers, funders like FMT offer tailored, flexible financing solutions, providing greater access to funding for businesses and individuals with specific needs. For investors, private credit can provide higher yields than traditional savings or bank term deposits, with many funds outperforming standard bank returns.

“There are two sides to our business: the lending side, where we lend money to people, and the investment side, where people trust us with their money and we on-lend it,” Bendall explains.

“The business has been built off the back of mum and dad-type investors, and as we get bigger, we want to diversify our funding sources so our business will appeal to a wider investment audience as well.” 

FMT doesn’t offer personal finance. “We just do first mortgage lending, and that's right across the spectrum from small-scale loans to people buying investment property through to habitual commercial property investors and an element of development.”

Bendall says Kiwis may not realise New Zealand has a thriving private credit sector that’s been steadily growing for many years. “Some people have outdated perceptions of risk in non-bank lending, but the reality is that private credit has evolved significantly and offers a more tailored and flexible option for investors. 

“It applies to borrowers too. We had a highly experienced property investor borrow some money from us a few months ago – he just got sick of the banks and wanted to have a tailored approach. 

“His lawyer said to him, ‘What have you done wrong that you can't get your money from a bank?’ He said, ‘No. It's actually the opposite. FMT are better to deal with’.”

The point of difference, Bendall says, “is that we provide tailored solutions. When you try to get money from a bank these days, if you don't fit perfectly into their boxes they don't want to deal with you or they dial back the lending quite significantly.

“We place a strong emphasis on the personal touch and providing a tailored solution. We'll look at the transaction in its entirety. Yes, it's really important that you've got the ability to service a loan, but that's not the be-all and end-all. We'll look at the whole transaction – the security, the person’s experience – and come up with a solution for them that provides a bit more flexibility.”

That applies to investors, too. “We've got our Group Investment Fund and our PIE Fund (portfolio investment entity, which may provide tax advantages) and we've just launched a Wholesale Fund that enables wholesale investors to invest into our Group Investment Fund and receive a bonus return for a fixed term investment. 

“People trust us with their money and that is pooled across our entire loan book. At any given time we've got around 630 loans and we've got about 1700 mortgages securing that.”

According to the IMF, half the global financial system is now embedded in the private credit sector or outside the traditional banking industry. “In America it makes up 50% of their lending. That’s not just property, it's personal finance, motor vehicle finance and credit cards. Australia's probably averaging 25%,” Bendall says.

We’re not quite there yet: “In the space that we play in, stripping out the personal finance lending, New Zealand is at about 8%.”

Bendall, who has over 20 years’ experience in the financial, property and banking sectors, says FMT was launched in 1996 by three Bay of Plenty law firms – later joined by two South Waikato firms – managing an initial $30 million of funds.

“Fast-forward to today and we're well on our way to $1.8 billion of funds under management. The business has really been built off an investor-first mentality and quite a conservative approach to lending. In our nearly 30 years of business we’ve never lost a cent of investor capital or missed a quarterly return to our investors and that’s something we’re committed to maintaining.”

The business has a national perspective, focusing on the five main centres: Auckland, Hamilton, Bay of Plenty, Wellington and Christchurch. “97% of our loan book is based in these areas. That's where the population is, where the jobs are and the markets that have proved stable over a long period of time,” Bendall says.

Disclaimer: First Mortgage Managers Limited is the manager of the First Mortgage Trust Group Investment Fund, the First Mortgage PIE Trust and the First Mortgage Trust Wholesale Fund. First Mortgage Managers Limited is licensed under the Financial Markets Conduct Act 2013 as a manager of registered schemes and is not a registered bank under the Banking (Prudential Supervision) Act 1989. Past performance is a not a reliable indicator of future performance. Returns are not guaranteed. For copies of the First Mortgage Trust Group Investment Fund and First Mortgage PIE Trust Product Disclosure Statements visit fmt.co.nz