Cam Harper of Southern Cross Partners says there are a lot of opportunities in P2P, but it’s a niche industry that will never really attack banks and never change how lending works
By Cam Harper *
In one recent article Gareth Vaughan said the peer-to-peer (P2P) lending industry is a: “… very, very, very far from realizing its potential.”
As a managing partner of one of New Zealand’s biggest P2P companies, I thought I’d share my point of view.
It is important to first clarify the potential of P2P in New Zealand. As Gareth pointed out, the industry has been touted as a game changer for years.
We’ve never seen it that way. P2P will not be a competitor of banks and will not change the way money is borrowed while creating new unicorn organizations.
However, it can produce profitable businesses that help New Zealanders who do not meet the banks’ strict lending criteria. The point is, banks make a ton of money without taking any risks at all. They don’t have to take anything that doesn’t match the pattern.
The reality is that there is currently a group of Kiwis who are in a good position to borrow but are being refused by the banks.
It could be someone who has returned to New Zealand due to Covid-19 but still has overseas income that banks don’t fully trust.
They may have a new rock solid job, but technically they haven’t been employed long enough to get a mortgage.
They may have a very successful business, but it has not been established long enough to meet the demands of the banks.
Or it could be someone who wants to do a major renovation, but it’s not worth the banks’ time to go into the details needed to get the loan approved.
This equates to a large group of people, but the bottom line is that it does not include small loans with a higher perceived risk.
It is important to note that we only work with loans backed by a first mortgage on borrowers’ property rather than anything unsecured and for P2P to work lenders need a strike zone. specific when it comes to knowing which loans are approved. This is what we have in place at Southern Cross Partners and it is a big reason why, to date, no investor has ever lost money with us.
Most of our work is on one-year bridging loans with the ultimate goal of getting things back to the bank. We are not a competitor of the banks, we are here to help people put themselves in a position to use the banks.
We are conservative. Some of our competitors are not, and this is what ultimately gives P2P a perception problem and, in some cases, a bad reputation.
So where is the growth of P2P coming from?
The current problem is that when people are turned down by the bank, they give up, or they just wait for things to fall into place to meet the criteria. For someone in today’s market, it could end up costing them hundreds of thousands of dollars.
Sometimes you can’t afford to wait for the banks.
Many mortgage professionals do not have a good grasp of what is possible with non-bank loans. And most borrowers don’t push them to find alternative solutions. Usually, as people, we avoid things we don’t understand.
Advisors who understand non-bank loans do very well for themselves. Basically, they can get two sources of income. Once on the P2P loan, again on the bank loan.
The Prime Minister recently said she was delighted with the record number of consents issued at this time. Unfortunately, that doesn’t mean more houses are being built. Jacinda Ardern was appalled because real estate developers were not getting the loans they needed from banks, which was delaying housing development and construction projects across New Zealand. Not what our housing crisis currently needs.
Non-bank loans are one way to get things done right away. It offers developers immediate solutions and gives investors a good opportunity to earn a solid return at a time when bank interest rates are extremely low.
There are a lot of opportunities in P2P, but it’s a niche industry that will never really go after banks and never change how lending works.
* Cam Harper is Managing Partner of Southern Cross Partners, a licensed peer-to-peer lender that specializes in short-term home loans.