Small mortgage blip for Basecorp in tough year

Basecorp director and chief financial officer John Moody says the lender is encouraged by that small drop compared to its peers and its book quality has held up.

“It’s clearly been a difficult economic and interest rate environment for borrowers to navigate and despite this, we have only small pockets of arrears of under 2% on our books.”

He says the low arrears, in line with credit bureau Centrix’s data, points to the strength of the company’s underwriting and the resilience of mortgage borrowers as well.

Basecorp has been focused on being pragmatic for its clients who have fallen behind in repayments.

Solutions, such as modifying loan terms from principal to interest only have been used in the majority of cases, or if there are job losses and there isn’t a lot of income, capitalising some of those payments are helping borrowers get through this difficult part of the cycle, Moody says.

“Ultimately, there is an expectation on lenders that enforcement action and mortgagee sales are used as a last resort. That is certainly the way the main banks are facing into those difficulties and we doing the same within our business.”

Moody has always been a believer that higher interest rates, particularly as a floating rate lender, have a led to a lot of difficulties for the non-bank sector.

Those difficulties were amplified this year by big Australia-based lenders Resimac and Bluestone pulling out of New Zealand, which he says has been a two-edged sword.

“On the one hand there are clearly more business opportunities for the remaining non-banks and as a New Zealand non-bank lender there's clearly not the same level of concern that we might exit in the same way as an Australian non-bank might be perceived.

“But on the other hand one thing we're conscious of is the impact on the industry and confidence in the industry. We don't think that will last, but in the short term there are concerns with the strength of the sector overall after seeing such large participants exit.”

He says it’s clear there is a shortage of competition within the main banking industry, however borrowers are well served in the non-bank segment through a wide range of players of varying sizes and operating in varying niches “I don’t believe the same criticism of the main bank sector can necessarily be extended to the wider non-bank industry.”

CCCFA rules

The recent loosening of the CCCFA rules hasn’t had much effect on the non-bank industry, Moody says.

They have allowed the main banks to be more flexible on income and expense verifications and that has played out in some of the widening of bank lending appetite over the past two to three months.

“There is clearly a desire in the search for main bank market share to be a bit more aggressive on credit and the loosening of the CCCFA rules has been a key factor in that.”

Although non-bank lenders are bound by the same rules, Moody says Basecorp is prepared to look at a deal for much longer than the banks and the business has much looser lending boxes than the banks, so the effect of the CCCFA changes has been much smaller generally.

Loan size increases

Basecorp’s loan size has increased to a maximum of $2.5 million.

The lender last set its maximum loan amount about six years ago and as house prices rose, particularly post-pandemic, there was a small level of demand for bigger mortgages which was turned away.

“We think it is a good opportunity to increase loan limits and look at some slightly larger deals under the right circumstances.”

Some of the lending will be larger linked deals and Moody says Basecorp can look at up to $5 million per linked securities, mainly in central Auckland suburbs where values are a bit higher. “When the purchase price is $3, 4, or 5 million dollars, lending $2.5 million on a single security is not a huge LVR. We are comfortable with some of those larger deals.

Investors have shown signs of returning to the market as confidence grows on the back on interest rate cuts and Basecorp has upsized its long-term facility by $50 million to meet core mortgage demand as the cycle normalises.

Moody says the business is focused on being “in funds” via facility headroom at all times with more than $800 million funding raised over the past two years.

Basecorp has also launched a new commercial property product, widened its bridging product eligibility and also loosened policy on certain products, including long-term land where it has added an interest only product.

Confidence

Coming off a difficult few years, Moody is confident next year will be a more positive environment.

As interest rates drop and another is expected at the end of this month, he says that will be a tailwind for both Basecorp and the wider non-bank industry.

“There are still challenges with where the market will head and how strong the overall property sector recovery will be, but within our business we are more confident in our prospects and the wider non-bank industry outlook.

“The big unknown are the banks’ appetites and that is still creating some difficulties for the industry.”

With a more confident year on the horizon, Basecorp is keen to get in front of more advisers next year through all its mediums – electronically, in person or its regular quarterly updates about business.