Your Guide to Peer-to-Peer Lending in New Zealand

Peer-to-peer lending has perks for borrowers in need of finance, and for investors who want to invest their money in a loan.

What’s caught your interest in peer-to-peer lending?

Could it be that it places people at the heart of your financial decision-making? Dealing in numbers can feel impersonal enough. Add in dealing with a large financial provider that can also make you feel like a small number, and the inflexible loan or investment terms you may find, and considering alternatives is understandable.

Whether you’re looking to secure a loan through peer-to-peer (P2P) lending, or for an investment provider that gives you choice, flexibility and reward, we’ve got your guide to peer-to-peer lending in New Zealand covered here.

How safe is peer-to-peer lending in New Zealand?

First things first, let’s establish the legitimacy of the peer-to-peer lending market in New Zealand.

The Financial Markets Conduct Act 2013 require peer-to-peer lending service providers to be licensed. So, it’s always a good idea to check the Financial Markets Authority (FMA) registry to ensure the provider you are considering is licensed. This gives you a level of assurance that the provider meets the requirements set out by the FMA to provide peer-to-peer investments and lending.

Unlike a handshake agreement between mates that has all the potential trappings of unhappy endings, peer-to-peer lending using third party intermediaries is a sanctioned way to connect people who want to borrow money with those who want to lend it (for a return).

Southern Cross Partners is one of the few licensed peer-to-peer lending providers in New Zealand, with the added security for both investors and borrowers of knowing that Southern Cross Partners:

• Vets, facilitates and manages all loans and investments on behalf of both parties
• Invests its own money first
• Deals exclusively in first mortgages, so there is always the security of real estate with any loan
• To date, SCP has always paid our investors the returns they expect.

The process and type of loans available differs across peer-to-peer providers, and all investment options come with risk. It’s important to do thorough research before making an investment decision; what checks and balances are in place to ensure your investing in a quality loan? How reputable is the financial service provider?

What borrowers should know about peer-to-peer loans

Whether you’re looking for a personal or a business loan, there are different peer-to-peer marketplaces available that can help connect you with potential investors keen to lend to you.

Peer-to-peer lending can be more attractive for borrowers who don’t neatly fit the lending criteria checklists used by banks or require more specialised funding. For example, a new business with little credit history, accessing equity from a property portfolio or a real estate development project.

This is another reason why peer-to-peer lending with Southern Cross Partners is more personal – real people assess your loan requirements seeking an understanding of your specific circumstances and the bigger picture you can provide to give assurance of your ability to repay the loan.

How to get a loan with peer-to-peer lending:

• Depending on the type of lending you’re looking for, you might use online assessment tools with different providers to determine your eligibility and put forward an application. On some platforms, it might simply be a case of matching with the right investor, at the right price.
• Property lending through Southern Cross Partners is normally done in partnership with your mortgage advisor, so be sure to talk with your mortgage advisor if a peer-to-peer loan with Southern Cross Partners could be right for you.

It’s worth noting that, by its nature, a peer-to-peer marketplace doesn’t necessarily mean that lending can happen in an instant. If there are more borrowers than investors, for example, then you may have to wait for the right investor to come along and choose your loan.

Note: This is NOT the case with Southern Cross Partners which lends first to borrowers with their own funds, eliminating the need to wait to find a peer investor to back a loan.

Why peer-to-peer for investment?

An investment in a peer-to-peer loan comes with a range of options, flexibility and additional earning potential than other passive investment choices.

Southern Cross Partners’ investor portal provides details of the investment opportunities available to help you choose an investment based on criteria that suits you most, such as:

• The loan term length (which might be anywhere between 3 to 24 months)
• The interest rate and LVR (Loan to Value Ratio)
• The purpose of the loan
• Specifics of the property being secured with the first mortgage (including location, size and intended use of the dwelling)
• The property value, and how SCP valued the property

This allows you to choose criteria that works for your investment needs and aligns with your personal preferences (for example, you might want to invest in property in your hometown above all). The same can be said for other types of peer-to-peer lending in other marketplaces.

So, what are the returns possible with peer-to-peer investing? How do they stack up with other options?

Generally speaking, peer-to-peer investments offer the opportunity for enhanced returns compared to other passive investment options. That’s reflective of the nature of the arrangement and the associated risks with the specific loan.

With Southern Cross Partners, for example, the potential interest rate you can earn will vary depending on the type of loan and other factors that make up the loan agreement. Interest from the loan repayment is paid out monthly*, unlocking value from your investment on a regular basis and providing a steady stream of passive income.

Check out our investments page to find out more about our current rates and minimum investment criteria.

* Compounding interest may be available for specified loans.

You might now be wondering how to invest with peer-to-peer lending. It’s simple, really. Here’s how the process looks at Southern Cross Partners:

So, is peer-to-peer online lending?

Many people conflate these, as peer-to-peer lending is often anchored by an online marketplace that helps people work through the criteria, and investors assess the available opportunities.

However, peer-to-peer lending can be much more bespoke than this, for example at Southern Cross Partners our loans to borrowers are normally brokered through mortgage advisors who identify, in partnership with their clients, whether peer-to-peer lending is right for them.

If it's the right fit, the loan is provided direct from Southern Cross Partners own funds, eliminating the potential downtime of matching with an investor.

(Tip: If you’re looking for a short-term mortgage loan, be sure to ask your mortgage advisor about Southern Cross Partners as an option).

Similarly, investors with Southern Cross Partners are supported with an online investor portal where they can browse investment opportunities that are available immediately. However, there’s also a local team of investment managers readily available to talk with you on the phone, at their office or even meet for a cuppa to learn more that way.

For more detailed information and to explore investment opportunities in this space, visit Southern Cross Partners.

Southern Cross Partners is licenced to provide peer to peer lender lending services under the Financial Markets Conduct Act 2013. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with a financial adviser before making any investment decisions.