A year of two halves for non-bank sector

In its end of year mortgage commentary, General Finance says that while the first part of 2016 was quiet with relatively few mortgage applications, things picked up in August around the time that banks tightened lending criteria. "So when banks tighten up there's so few of us left and we can't pick up the slack" says executive director William Cairns.

The increased demand has led to some second tier lenders running low or even out of money according to some industry sources. "There's definitely people hitting their funding caps, and also their risk appetite might have dipped a wee bit with the banks pulling back" according to Nigel Staples at Cressida Capital.

One consequence is rising interest rates as banks seek more expensive funding offshore and the second-tier lenders compete for money which has drifted into funds management, or the sharemarket and property. With five-year fixed mortgage rates already nudging six per cent, General Finance predicts that mortgage rates will increase as competition for funds hots up.

On the positive side, General Finance has been able to "pick and choose" what it lends on and there's been a corresponding decline in arrears. Cairns says "we're being a lot more fussy on the deals we write, a lot stricter, and so we're writing much better quality stuff."

However, First Mortgage Trust CEO, Tony Kinzett, says it's not just changes in the banking environment that is driving demand. Population growth, increased employment opportunities and the steady growth in property values have seen the FMT mortgage fund grow year on year since the GFC to more than $460 million.

"The whole environment has been good for the property market because you've got a situation where demand far exceeds supply."

Looking ahead, most agree that 2017 is looking good. Improved dairy prices, tourism growth and continued migration auger well for the economy. "I tend to agree with the positive outlook next year" says Staples, "and those businesses which have strong funding lines should be very busy." Unless something untoward hits us from overseas, Kinzett believes that "we're going to continue to have a good strong market here in New Zealand."

All the more reason, says Cairns, why New Zealand needs a strong and vibrant New Zealand owned and operated second tier finance sector.

Unfortunately, he says increased Government regulation has "shut down the indigenous part of the banking sector" leaving mostly offshore multinationals.

"One of the by-products of all this regulation and supervising has been to force the New Zealand players out of the market and I think that's a negative thing."