Cam Harper of Southern Cross Partners says there's lot of opportunity in P2P, but it’s a niche industry that will never really take on the banks and change the way lending works

By Cam Harper*

In a recent article Gareth Vaughan stated the peer-to-peer (P2P) lending sector is a: “…very, very, very long way away from fulfilling its potential.”

As a managing partner of one of New Zealand’s largest P2P businesses, I thought I’d lend my perspective.

It’s important to first clarify the potential of P2P in New Zealand. As Gareth pointed out, the industry has been hyped as a game changer for years.

We never saw it this way. P2P isn’t going to be a competitor to the banks and change the way money is borrowed while at the same time creating new unicorn organisations.  

However, it can produce profitable businesses that help New Zealanders who fall outside of the banks’ strict lending criteria. The fact is the banks make a tonne of money without taking on much risk at all. There is no need for them take anything that doesn’t fit the template.

The reality is, there are a bunch of Kiwis out there right now who are in a good position to borrow but are being refused by the banks.

They may be someone who returned to New Zealand because of Covid-19 but still have an overseas income the banks don’t fully trust.

They may have a rock-solid new job but haven’t technically been employed long enough to get a mortgage.

They may own a very successful business, but it hasn’t been established long enough to meet the banks’ requirements.

Or they may be someone who wants to do a sizeable renovation but it’s not worth the banks’ time to breakdown the particulars needed to get the loan approved.

This equates to a large group of people, but the key thing is it doesn’t include smaller loans with a higher perceived risk.

It’s important to note we only work with lending that’s supported by first mortgage over the borrowers property rather than anything unsecured and for P2P to work, the lenders need a specific strike zone when it comes to which loans are approved. This is what we have in place at Southern Cross Partners and it’s a large reason why, to date, no investor has ever lost money with us.

Most of our work is around one-year bridging loans with the end goal of passing things back to the bank. We’re not a competitor to the banks, we’re here to help people get in position to use the banks.

We’re conservative. Some of our competitors are not, and that is what ultimately gives P2P a perception issue and in some cases, a bad name.

So where does the growth come from for P2P?

The current problem is that when people get declined by the bank they give up, or they just wait for things to fall in place to meet the criteria. For someone in the current market, this could end up costing them hundreds of thousands of dollars.

Sometimes you can’t afford to wait for the banks.

Many mortgage advisors don’t have a sound knowledge of what’s possible with non-bank lending. And most borrowers don’t push them to find alternative solutions. Generally, as people, we shy away from things we don’t understand.

The advisors who understand non-bank lending do very well for themselves. Essentially, they’re able to get two revenue streams. Once on the P2P loan, again on the bank loan.

The Prime Minister recently said she was thrilled by the record number of consents being issued at the moment. Unfortunately, this doesn’t actually mean more houses are being built. Jacinda Ardern was dismayed because property developers weren’t getting the loans they needed from the banks, causing delays for housing development and construction projects across New Zealand. Not what our housing crisis needs right now. 

Non-bank lending is a way to get things going right away. It gives developers immediate solutions and gives investors a good opportunity to get a solid return at a time when bank interest is extremely low. 

There’s a lot of opportunity in P2P, but it’s a niche industry that will never truly take on the banks and change the way lending works.  

*Cam Harper is managing partner of Southern Cross Partners, a licensed peer-to-peer lender that specialises in short term property lending.